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Explain the critical assumptions that underpin the Capital asset pricing model (CAPM). (500 WORDS)

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Finance

Explain the critical assumptions that underpin the Capital assetpricing model (CAPM).

(500 WORDS)

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Explain the critical assumptions that underpin the Capital asset pricing model CAPM The CAPM is based on the following assumptions I Riskaverse investors The investors are basically riskaverse and diversification is necessary to reduce their risks II Maximizing the utility of terminal wealth An investor aims at maximizing the utility of his wealth rather than the wealth or return The term Utility describes the differences in individual preferences Each increment of wealth is enjoyed less than the last as each increment is less important in satisfying the basic needs of the individual Thus the diminishing marginal utility is most applicable to wealth III Choice on the basis of risk and return Investors make investment decisions on    See Answer
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Explain the critical assumptions that underpin the Capital assetpricing model (CAPM).(500 WORDS)

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