Which of the Following Statements Is False

question 34

Multiple Choice

Which of the following statements is false?

• A) We can improve the performance of our portfolio by selling stocks with negative alphas.
• B) The market portfolio is on the SML, and according to the CAPM, since all other portfolios are inefficient they will not fall on the SML.
• C) The difference between a stock's expected return and its required return according to the security market line is called the stock's alpha.
• D) The risk premium for any security is proportional to its beta with the market.

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Definitions:

Pure Competitors

Firms operating in a market where products are identical, and there are no barriers to entry, leading to many sellers and buyers.

R&D

Research and Development; activities undertaken by companies or governments in order to innovate and introduce new products or services.

Innovation

The process of creating new products, services, or methods that improve efficiency or provide new benefits.

Distribution Method

Strategies and channels a company uses to deliver its goods or services to consumers.