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:

Attribution Theory

The view that people act as intuitive scientists when they observe other people’s behavior and infer explanations about why those people acted the way they did.

Intuitive Scientists

A theory suggesting that people often act like amateur scientists, attempting to understand and predict other people's behavior by forming hypotheses and making deductions.

Social Cognition Theory

A theory that focuses on how people process, store, and apply information about other people and social situations, emphasizing the role of cognitive processes in understanding social interaction.

Causal Attribution

The process of identifying the cause of an event or behavior, attributing it either to internal dispositions or to external situations.