Use the Information for the Question(s)below

question 83

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)A portfolio is efficient if it has the highest possible Sharpe ratio;that is it is efficient if it provides the largest increase in expected return possible for a given increase in volatility.
• B)The required return for an investment is equal to a risk premium that is equal to the risk premium of the investor's current portfolio scaled by .
• C)Increasing the investment in investment I will increase the Sharpe ratio of portfolio P if its expected return E[R_i] exceeds the required return r_i,which is given by r_i = r_f + × (E[R_p] - r_f).
• D)If a security i's expected return is less than the required return r_i,we should reduce our holding of security i.

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