Which of the Following Statements Is False

question 49

Multiple Choice

Which of the following statements is false?

• A) The market portfolio is the efficient portfolio.
• B) Many practitioners believe it is sensible to use the CAPM and the security market line as a practical means to estimate a stock's required return and therefore a firm's equity cost of capital.
• C) If we plot individual securities according to their expected return and beta, the CAPM implies that they should all fall along the CML.
• D) As savvy investors attempt to trade to improve their portfolios, they raise the price and lower the expected return of the positive alpha stocks, and they depress the price and raise the expected return of negative alpha stocks, until the stocks are once again on the security market line and the market portfolio is efficient.

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Definitions:

Annuity Payment

A periodic payment received from an annuity investment, typically for retirement income.

Final Payment

the last payment that completes the payoff of a loan or financial obligation.

Compounded Monthly

The method of calculating interest where the earned interest is added to the principal balance each month.

End-of-month Payments

Payments made at the end of each month, often used in billing cycles or loan agreements.