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Which of the following is correct regarding the CAPM? a. The CAPM implies that the return...

Which of the following is correct regarding the CAPM?

a. The CAPM implies that the return of an investor equals the market premium magnified by the portfolio’s beta plus the risk-free rate of return.

b. The CAPM assumes investors are not rational and have certain behavioral biases.

c. CAPM believes that a portion of total risk remains even after diversification.

d. The CAPM assumes investors have modest transaction costs (including taxes).

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Answer #1

Option a is correct . As per CAPM Rate of Return =Risk Free Rate+Beta*Market Premium

Option b, c and d are incorrect because the assumptions of CAPM are
Inventors are rational, there are no transaction costs. and CAPM provides return only for diversifiable risk.

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