Which of the Following Statements Is FALSE

question 22

Multiple Choice

Which of the following statements is FALSE?

• A)A portfolio is efficient if it has the highest possible Sharpe ratio; that is it is efficient if it provides the largest increase in expected return possible for a given increase in volatility.
• B)The required return for an investment is equal to a risk premium that is equal to the risk premium of the investor's current portfolio scaled by .
• C)Increasing the investment in investment I will increase the Sharpe ratio of portfolio P if its expected return E[R_i] exceeds the required return r_i,which is given by r_i = r_f + × (E[R_p] - r_f).
• D)If a security i's expected return is less than the required return r_i,we should reduce our holding of security i.

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Definitions:

Simplify

The process of altering an expression into its most basic form or version, usually by combining like terms and applying mathematical operations.

Expression

A combination of symbols that represents a quantity or a relationship between quantities in mathematics or computer programming.

Rationalize

The process of modifying an expression to eliminate radicals from the denominator or complex numbers from the denominator of a fraction.

Denominator

The bottom part of a fraction that tells into how many equal parts the whole is divided.