Which of the Following Statements Is FALSE

question 60

Multiple Choice

Which of the following statements is FALSE?

• A)The risk premium of any marketable security can be written as the sum of the risk premium of each factor multiplied by the sensitivity of the stock with that factor.
• B)The factor betas measure the sensitivity of the stock to a particular factor.
• C)If we use more than one portfolio as factors,then together these factors will capture systematic risk,but each factor captures different components of the systematic risk.
• D)When we use more than one portfolio to capture risk,the model is known as a single-factor model.

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Definitions:

CAPM

The Capital Asset Pricing Model; a formula that calculates expected return on investment based on its risk relative to the market.

Risk-Free Rate

The projected gain from an investment without any risk, commonly exemplified by the returns on government bonds.

Market Proxy

A benchmark or index that represents the overall movement of the market, used for comparative analysis of an investment's performance.

CAPM

Capital Asset Pricing Model, a formula that describes the relationship between the expected return of an investment and its risk.