CAPM assumes that all investors ______

I. are risk-averse.
II. are utility-maximizing.
III. have the same degree of risk aversion.
IV. are rational.

Correct Answer: I, II and IV

III. They want to be compensated for accepting risks but they don't have to have the same degree of risk aversion.
II. Investors are never satisfied. They want higher returns, not lower returns.
IV. Homogeneity among investors requires that investors be rational individuals.