The Capital Asset Pricing Model (CAPM) assumes that: risk premiums change over time. investors are irrational. investors all have different goals. investors are rational.
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Which of the following are true? I. Expected return on a risky asset is made up of risk-free return and that asset's risk premium. II. The return on market portfolio is a common factor for all the risky assets. III. Even though the market is in equilibrium, the reward-to-risk ratio of an individual asset could be different from the reward-to-risk ratio of the market portfolio. IV. When the market is in equilibrium, all the risky assets will have the same risk premiums. V. Reward-to-risk ratio and risk premium are the same for the market portfolio 1. I and II 2. I and III 3. I, II and IV 4. I, II and V 5. I, III, IV and V
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