Hi, In part (iv) of the question what is meant by the optimisation of consumption over time? This appears in this solution and on page 14 of chapter 8. When in the solution the bullet point says based on unrealistic assumptions, for the first hyphen could we say investors are homogenous, would this be an acceptable alternative statement to the long sentence that has been written? Thank you, Rachael
I think that the "optimisation of consumption over time" has to do with changing demand for assets over time. CAPM doesn't allow for this as the equilibrium point is assumed to have been reached already - and this doesn't change. Investors are homogeneous in some respects (but they don't, for example, all have the same risk appetite). Listing the areas of similarity would be preferable.
Is the assumption that the equilibrium point has been reached equivalent to the fact that the market portfolio contains all risky assets? Yes, I see your point on homogeneity. Thank you for clearing that up.
