Which of the Following Statements Is FALSE

question 53

Multiple Choice

Which of the following statements is FALSE?

• A) The risk premium of a security is equal to the market risk premium divided by the amount of market risk present in the security's returns measured by its beta with the market.
• B) The beta of a portfolio is the weighted average beta of the securities in the portfolio.
• C) There is a linear relationship between a stock's beta and its expected return.
• D) A security with a negative beta has a negative correlation with the market, which means that this security tends to perform well when the rest of the market is doing poorly.

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Definitions:

Economic Profit

The profit a company makes after deducting both its explicit (actual cash outflows) and implicit (opportunity) costs.

Profit Motive

The driving force behind business activities focused on achieving financial gain.

Long-Run Economic Profit

The sustainable profit a firm earns over time, assuming entry and exit in the market are possible and adjustments have been made.

Self-Interest

An individual's personal gain or advantage, especially when pursued without regard for others.