"Because all investors hold the same risky portifolio, the weight on each asset must equal to the ratio of its market value to the market market value of all risky assets!. Schweser Mock 2.
Could someone explain please.
CAPM assumes everyone has the same risky portfolio because investors have homogeneous expectations and arrive at the same value per asset. It’s obviously not true, but it’s an assumption. It’s a big hypothetical. The second part of the sentence just says that that risky portfolio is divided up by market value. AAPL will be a bigger portion than TSLA in terms of weight because its market value is larger.
If everyone held the same portfolio they would all have to hold the same proportion of that one security. The total MV of their portfolio would equal (1/n)(MV of all Risky Assets). Therefore, the ratios will all be the same.
thanks