Capital Asset Pricing Model (CAPM): Assumptions

The theoretical market portfolio that lies at the heart of the Capital Asset Pricing Model (CAPM) is _best_ described as:

Incorrect. This is a more realistic proxy often used in place of the market portfolio, but it falls short of constituting the theoretical market portfolio _M_.

Correct! The theoretical market portfolio includes everything, since in theory, all assets are fairly priced.

Incorrect. This market portfolio is not a single risky asset at all.

the S&P 500 index.

a portfolio of all risky assets in existence.

a specific single risky asset, which is most efficiently placed with the risk-free rate.