• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

FM mock

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › FM mock

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by LMR1006.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 24, 2024 at 11:11 pm #705959
    Titan
    Participant
    • Topics: 2
    • Replies: 2
    • ☆

    Which of the following statements regarding the capital asset pricing model (CAPM) are NOT correct?

    (1) The return required from an investment is related to unsystematic risk
    (2) CAPM assumes that investors are well diversified
    (3) CAPM ignores the effect of company tax
    (4) CAPM assumes that debt is risk free

    a) statements 2, 3 and 4
    b) statements 1 and 2
    c) statements 1, 3 and 4
    d) statements 1 and 3

    This was a question in the opentuition FM mock. The correct answer was C. Could you tell me why 3 and 4 are not correct ? Because from what I know CAPM assumes a Perfect capital market which means no tax and transaction costs and CAPM also assumes that investors can borrow and lend at the risk free rate.

    May 25, 2024 at 7:11 am #705965
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1511
    • ☆☆☆☆☆

    c) So whilst the CAPM assumes a perfect market with no taxes and transaction costs…but it does not explicitly ignore the effect of company tax. The cost of debt to the company is lower due to tax relief on debt interest, which indicates that taxes are considered in the broader financial context.

    And d) although the CAPM assumes that investors can borrow and lend at the risk-free rate, it does not assume that all debt is risk-free. The risk-free rate is typically represented by the yield on short-dated government debt, which is considered risk-free, but this does not extend to all forms of debt.

    May 25, 2024 at 1:20 pm #706004
    Titan
    Participant
    • Topics: 2
    • Replies: 2
    • ☆

    Thank You very much.

    May 25, 2024 at 3:04 pm #706008
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1511
    • ☆☆☆☆☆

    Your most welcome

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • OmarAlbeity on ACCA BT Chapter 6 – Some legal obligations – Questions
  • Salimbek909 on The nature and structure of organisations – ACCA Paper BT
  • Sefater on Chapter 3 – Property Income and Investments – Individuals TX-UK FA2023
  • adityachaudhry on Discounted cash flow techniques (part 3) – ACCA (AFM) lectures
  • nuripamir on ACCA Administrative Review

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in