The following are assumptions made by the CAPM model: All investors are risk-averse by nature. Investors have the same time period to evaluate information. There is unlimited capital to borrow at the risk-free rate of return.
What are the three main assumptions of the Capital Asset Pricing Model CAPM?
CAPM assumes the availability of risk-free assets to simplify the complex and paired covariance of Markowitz's theory. The risk-free asset leads to the curved efficient frontier of MPT and makes the linear efficient frontier of the CAPM simple.