Microsoft PowerPoint - PoF.ppt

Assumptionsƒ 54

The CAPM was simultaneously and independently discovered by W. Sharpe (1964), J. Lintner (

1965), and J. Mossin (1966).

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Investors can choose on the basis of expected return and variance!

Recall that this is true if either

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portfolio returns are normally distributed or

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investors have a quadratic utility function!

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All investors agree on the planning horizon and the distributions of security returns.

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There are no frictions in the capital markets.

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Note that the CAPM can be deri

ved without assumptions 2 and 3.

Single-period random cash flows: CAPM