Which of the Following Statements Is False

question 49

Multiple Choice

Which of the following statements is false?

• A) Beta differs from volatility.
• B) The risk premium investors can earn by holding the market portfolio is the difference between the market portfolio's expected return and the risk-free interest rate.
• C) Stocks in cyclical industries, in which revenues tend to vary greatly over the business cycle, are likely to be more sensitive to systematic risk and have higher betas than stocks in less sensitive industries.
• D) If we assume that the market portfolio (or the S&P 500) is efficient, then changes in the value of the market portfolio represent unsystematic shocks to the economy.

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Definitions:

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, typically used to monitor inflation.

Compound Annual Real Rate of Return

The rate of return on an investment, adjusted for inflation, that compounds annually, reflecting the true purchasing power of earnings.

Annual Rate of Inflation

The percentage increase in the price of goods and services over a one-year period, indicating the rate at which the purchasing power of money is eroded.

Compounded Quarterly

The process of adding interest to the principal amount of an investment or loan on a quarterly basis, leading to interest on interest.