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:

Supply-Siders

Economic theorists who believe that lower taxes, decreased regulation, and a reduced role of government in the economy will lead to increased production and supply, driving economic growth.

Tax Rates

The percentage of income or value of goods taxed by the government, varying across different income brackets and types of goods.

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time, usually measured by the consumer price index (CPI).

Countercyclical Intervention

Economic policies or actions taken to counteract the negative effects of economic downturns.