Which of the Following Statements Is False

question 82

Multiple Choice

Which of the following statements is false?

• A) Because all other risk is diversifiable, it is an investment's beta with respect to the efficient portfolio that measures its sensitivity to systematic risk, and therefore determines its cost of capital.
• B) If a security's expected return exceeds its required return given our current portfolio, then we can improve the performance of our portfolio by adding more of the security.
• C) The appropriate risk premium for an investment can be determined from its beta with the efficient portfolio.
• D) As we buy shares of a security i, its correlation with our portfolio P will increase, ultimately raising its required return until E[R_i] = R_p.

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Definitions:

Normal Balance

An account balance on the side where an increase in the account is recorded.

Ledger

A record that consolidates all transactions related to a particular account, facilitating the preparation of financial statements.

Analyzed

The process of examining data or a financial statement in detail to extract insights or identify trends.