CAPM assumptions

The Capital Asset Pricing Model (CAPM) relies on several assumptions to estimate the return an investor should expect from a risky investment. It assumes investors are rational and seek to maximize returns while minimizing risk, and they have access to all relevant information. Markets are efficient, meaning all assets are fairly priced, and there are no taxes or transaction costs. Investors can lend and borrow freely at a risk-free rate. Additionally, all investors have the same expectations about future returns and can choose portfolios freely. These assumptions create a simplified framework to analyze investment risks and returns.