Which of the Following Statements Is False

question 43

Multiple Choice

Which of the following statements is false?

• A) One key result of applying the Capital Asset Pricing Model is that the risk and return of an individual security should be analyzed by how that security affects the risk and return of the portfolio in which it is held.
• B) According to the Capital Asset Pricing Model,investors are primarily concerned with portfolio risk,not the isolated risks of individual stocks.Thus,the relevant risk is an individual stock's contribution to the overall riskiness of the portfolio.
• C) The CAPM is built on expected conditions,although we are limited in most cases to using past data in applying it.Betas used in the CAPM which are calculated using historical data are always subject to changes in future volatility,and this is a limitation on the use of the CAPM.
• D) If the price of money increases due to greater anticipated inflation,the risk-free rate will reflect this fact.Although r_RF will increase,it is possible that the SML required rate of return for a stock will decrease because the market risk premium (r_M − r_RF)will decrease.(Assume that beta remains constant. )
• E) Any change in beta is likely to affect the required rate of return on a security which implies that a change in beta will likely have an impact on the security's price.

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Definitions:

Vertigo

A sensation of spinning or dizziness, often related to problems in the inner ear.

Syncope

A temporary loss of consciousness usually related to insufficient blood flow to the brain, commonly known as fainting.

Dizziness

A sensation of unsteadiness, lightheadedness, or feeling as though one's surroundings are spinning.