Which of the Following Statements Is FALSE

question 33

Multiple Choice

Which of the following statements is FALSE?

• A) When we combine many shares in a large portfolio, the firm-specific risks for each share will average out and be diversified.
• B) The risk premium of a security is determined by its systematic risk and does not depend on its diversifiable risk.
• C) The volatility in a large portfolio will decline until only the systematic risk remains.
• D) Fluctuations of a share's returns that are due to firm-specific news are common risks.

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Definitions:

Price Level

A measure of the average prices of goods and services in an economy at a specific time.

Money Supply

The aggregate of financial assets in an economy at a specific moment, which includes cash, coins, and the deposits in checking and savings accounts.

Quantity Equation

An equation that relates the quantity of money in an economy to the level of economic activity, typically framed as MV = PQ.

Price Level

A gauge for the typical prices of products and services in an economy at a certain time.