The basic assumptions of CAPM methodology

You are the managing partner at a venture capital firm, and you feel that to solidify your status as a full$-$service institution, you must bolster your in$-$

house valuation division. Part of this process is remembering some of the basic assumptions of the Capital Asset Pricing Model $($CAPM$).$

One of your team members submitted the list of assumptions that follows. Which statements are true assumptions of the CAPM $?$ Check all that

apply.

Investors can borrow an unlimited amount at a risk$-$free rate.

Asset quantities aren't given.

Investors have homogenous expectations.

There are no taxes.

Assets won't be short sold.

The CAPM helps in determining the required return on a stock and its relation with risk. Along with variability of returns, there is another important

dimension to risk$-$the risk of failure. From a shareholder wealth maximization perspective, the cost of failure $($both direct and indirect$)$ can be very

high for the company as well as its shareholders.

Diversification of businesses and investments made by the company can help a firm reduce its risk and

the probability of bankruptcy.

This will lead tc

bankruptcy costs and thus will have a

impact on shareholder wealth.