Which of the Following Statements Is False

question 47

Multiple Choice

Which of the following statements is false?

• A) The Sharpe ratio measures the ratio of volatility-to-reward provided by a portfolio.
• B) Borrowing money to invest in stocks is referred to as buying stocks on margin.
• C) The Sharpe ratio is the number of standard deviations the portfolio's return would have to fall to under-perform the risk-free investment.
• D) The slope of the line through a given portfolio is often referred to as the Sharpe ratio of the portfolio.

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Definitions:

Target Capital Structure

The mix of debt, preferred stock, and common equity that a company aims to hold to minimize its cost of capital and maximize its market value.

Forecasted Net Income

Forecasted net income is an estimate of a company's future profits after all expenses and taxes have been subtracted from revenues.

Total Dividends

The sum of all dividend payments made by a company to its shareholders over a specified period, usually a fiscal year.

Residual Dividend Policy

A policy wherein dividends are based on the earnings left over after all operating expenses and expansion projects are funded.