Use the Information for the Question(s)below

question 8

Multiple Choice

Use the information for the question(s) below.
Suppose that you currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%.The efficient (tangent) portfolio has an expected return of 17% and a volatility of 12%.The risk-free rate of interest is 5%.
-Which of the following statements is FALSE?

• A)Because all other risk is diversifiable,it is an investment's beta with respect to the efficient portfolio that measures its sensitivity to systematic risk,and therefore determines its cost of capital.
• B)If a security's expected return exceeds its required return given our current portfolio,then we can improve the performance of our portfolio by adding more of the security.
• C)The appropriate risk premium for an investment can be determined from its beta with the efficient portfolio.
• D)As we buy shares of a security i,its correlation with our portfolio P will increase,ultimately raising its required return until E[R_i] = R_p.

---

Definitions:

Metric System

A decimal system of units based on the meter, kilogram, second, etc., used for scientific and most international measures.

Elastic Demand

A scenario in which the need for a product or service drastically shifts due to variations in its cost.

Increase Revenue

Increasing revenue refers to actions or strategies aimed at raising the total amount of money generated from sales of goods or services.

Firm

A business organization, such as a corporation or partnership, that sells goods or services in exchange for money.