Which of the Following Statements Is FALSE

question 24

Multiple Choice

Which of the following statements is FALSE?

• A)Beta differs from volatility.
• B)The risk premium investors can earn by holding the market portfolio is the difference between the market portfolio's expected return and the risk-free interest rate.
• C)Stocks in cyclical industries,in which revenues tend to vary greatly over the business cycle,are likely to be more sensitive to systematic risk and have higher betas than stocks in less sensitive industries.
• D)If we assume that the market portfolio (or the S&P 500)is efficient,then changes in the value of the market portfolio represent unsystematic shocks to the economy.

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Definitions:

Diluted Earnings Per Share

A measure of a company's profit divided by the number of shares outstanding, including all possible sources of conversion.

Treasury Stock Method

A method used to compute the diluted shares outstanding by assuming all in-the-money options and warrants are exercised and the proceeds from exercise are used to buy back shares at the average market price.

Market Price

The current price at which an asset or service can be bought or sold in a open and competitive market.

Convertible Bonds

Convertible bonds are fixed-income debt securities that can be converted into a predetermined number of the issuer's equity shares at certain times during their life, usually at the discretion of the bondholder.