The correct answer is: A. affect stock prices.
In the capital asset pricing model (CAPM), investors assume that buying and selling activity will affect stock prices. This is because the CAPM is based on the idea that the price of a stock is determined by its expected return and its risk. When investors buy or sell a stock, they are changing the supply and demand for that stock, which in turn affects its price.
Option B is incorrect because the CAPM does not assume that buying and selling activity does not affect stock prices. In fact, the CAPM is based on the idea that the price of a stock is determined by its expected return and its risk. When investors buy or sell a stock, they are changing the supply and demand for that stock, which in turn affects its price.
Option C is incorrect because the CAPM does not assume that buying and selling activity will have high taxes. In fact, the CAPM does not take taxes into account at all.
Option D is incorrect because the CAPM does not assume that buying and selling activity will have high transaction costs. In fact, the CAPM does not take transaction costs into account at all.