Corporate Finance - Capital Asset Pricing Model Assumptions

This video discusses several assumptions of the Capital Asset Pricing Model (CAPM). The Capital Asset Pricing Model assumes that: 1. Investors buy and sell securities at competitive market prices. An investor is therefore a price-taker and cannot influence the price of a security 2. Investors do not face transaction costs or taxes when they buy and sell securities 3. Investors lend and borrow at the risk-free rate 4. Investors have homogeneous expectations regarding securities (if all investors have access to publicly-available information, their estimates about expected returns, volatilities, etc. are likely to be similar). 5. Investors only hold efficient portfolios of securities. A portfolio is efficient if you cannot find a different portfolio with a higher expected return for the same level of risk (volatility). Thus, if Portfolio A and Portfolio B both have volatility of 20%, but Portfolio A has a higher expected return, investors will prefer Portfolio A to Portfolio B.— Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES AND SPREADSHEETS * http://eepurl.com/dIaa5z — SUPPORT EDSPIRA ON PATREON *https://www.patreon.com/prof_mclaughlin — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT * https://edspira.thinkific.com — LISTEN TO THE SCHEME PODCAST * Apple Podcasts: https://podcasts.apple.com/us/podcast/scheme/id1522352725 * Spotify: https://open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc * Website: https://www.edspira.com/podcast-2/ — GET TAX TIPS ON TIKTOK * https://www.tiktok.com/@prof_mclaughlin — ACCESS INDEX OF VIDEOS * https://www.edspira.com/index — CONNECT WITH EDSPIRA * Facebook: https://www.facebook.com/Edspira * Instagram: https://www.instagram.com/edspiradotcom * LinkedIn: https://www.linkedin.com/company/edspira — CONNECT WITH MICHAEL * Twitter: https://www.twitter.com/Prof_McLaughlin * LinkedIn: https://www.linkedin.com/in/prof-michael-mclaughlin — ABOUT EDSPIRA AND ITS CREATOR * https://www.edspira.com/about/ * https://michaelmclaughlin.com