What are the limitations of the Capital Asset Pricing Model (CAPM) as an investment appraisal technique?

Advanced Financial Management Block Revision Mock Exams

Limitations of the Capital Asset Pricing Model (CAPM)

• Inability to define the exact market composition.

• CAPM is a single period model

• CAPM is a single factor model

• CAPM assumes full diversification

• Distinction between lending and borrowing is not considered CAPM.

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