Question

29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected retun will increase for a given increase in volatility B) We should continue to trade securities until the expected r return of each security equals its required return. Q) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio. D) If security is required retun exceeds its expected returm, then adding more of it will improve the of the portfolio. 30) Which of the following statements is FALSE? A) Because all other risk is diversifiable, it is an investment's beta with respect to the efficient portfolio that measures its sensitivity to systematic risk, and therefore determines its cost of capital. B) If a security's expected return exceeds its required return given our current portfolio, then we can improve the performance of our portfolio by adding more of the security C) The appropriate risk premium for an investment can be determined from its beta with the effidient D) As we buy shares of a security i, its correlation with our portfolio P will increase, ultimately raising its required return until EIRA-Rp 31) Which of the following statements is FALSE? A) Because all investors should hold the risky securities in the same proportions as the efficient portfolio, their combined portfolio will also reflect the same proportions as the efficient portfolio. B) When the CAPM assumptions hold, choosing an optimal portfolio is relatively straightforward: it is the combination of the risk-free investment and the market portfolio. C) Graphically, when the tangent line goes through the market portfolio, it is called the security market line (SML) D) A portfolio's risk premium and volatility are determined by the fraction that is invested in the market 32) Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)? A) Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities. have homogeneous risk adverse preferences toward taking on rish B) Investors have ho C) Investors hold only efficient portfolios of traded securities, that is portfolios that yield the maximum expected return for the given level of volatility. D) Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate.

Answer 1

The solution to the given question is provided below:

1.
Option D

2.
Option D

3.
Option A

4.
Option B