Use the Following Information to Answer the Question(s)below

question 118

Multiple Choice

Use the following information to answer the question(s) below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio) : growth stocks and value stocks.Assume that these two portfolios are equal in size (market value) ,the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics: The risk free rate is 3.5%.
-Which of the following statements is FALSE?

• A)A combination of portfolios on the efficient frontier of risky investments is also on the efficient frontier of risky investments.
• B)The conclusion of the CAPM that investors should hold the market portfolio combined with the risk-free investment depends on the quality of an investor's information.
• C)The SML holds with some rate r* between r_s and r_b in place of r_f,where r* depends on the proportion of savers and borrowers in the economy.
• D)In reality,investors have different information and spend varying amounts of effort on research for assorted stocks.

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Definitions:

Support Department

A department that provides a necessary service to produce a product but is not directly involved in the production process. Also known as a service department.

Human Resources Department

The division of a business that is focused on activities relating to employees, including hiring, training, and benefits management.

Investment Center

A decentralized unit in which the manager has the responsibility and authority to make decisions that affect not only costs and revenues but also the fixed assets invested in the center.

Plant Assets

Physical resources that are owned and used by a business and are permanent or have a long life; long-term or relatively permanent tangible assets such as equipment, machinery, and buildings that are used in normal business operations.