Why do all investors hold the market portfolio as their ORP according to the CAPM?

Finance Aug 12, 2020

Expert Solution

According to CAPM all investors are normally rational which means they will choose to have a portfolio with homogeneous expectations. This is one of the reason why all the investors hold the same risky portfolio. Here all the assets are chosen in proportion to their market value, and in case any assets are excluded from the portfolio it will result in an increase in the risk of assets.

After considering all the above factors,we can conclude that investors hold market portfolio as their ORP according to CAPM.

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