Which of the Following Statements Is False

question 22

Multiple Choice

Which of the following statements is false?

• A) If investors have homogeneous expectations, then each investor will identify the same portfolio as having the highest Sharpe ratio in the economy.
• B) Homogeneous expectations are when all investors have the same estimates concerning future investments and returns.
• C) There are many investors in the world, and each must have identical estimates of the volatilities, correlations, and expected returns of the available securities.
• D) The combined portfolio of risky securities of all investors must equal the efficient portfolio.

Understand the impact of macroeconomic and firm-specific events on security returns.

Recognize the limitations of diversification in reducing portfolio risk.

Distinguish between systematic and nonsystematic risk in the context of the single-index model and portfolio management.

Interpret the security characteristic line (SCL) and its components, including alpha and beta.

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Definitions:

Ash

Fine particles of volcanic rock and glass created during volcanic explosions, which can be carried long distances by the wind.

Explosive Eruptions

Volcanic eruptions characterized by the violent expulsion of gases, lava, and rock fragments from a volcano.

Nonexplosive Eruptions

Volcanic eruptions characterized by the effusive emission of lava flows with minimal airborne ash and fragmental material.

Single Volcano

A solitary mountain or hill typically characterized by a crater or vent through which lava, rock fragments, hot vapor, and gas are being or have been expelled.