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[Ri] exceeds the required return ri,which is given by ri = rf + × (E[Rp] - rf).
D)If security i's expected return is less than the required return ri,we should reduce our holding of security i.

Question

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[Ri] exceeds the required return ri,which is given by ri = rf + × (E[Rp] - rf). 
D)If security i's expected return is less than the required return ri,we should reduce our holding of security i.

Quizplus · Accepted Answer

The required return for an investment is equal to a risk premium that is equal to the risk-free rate plus a scaled risk premium of the investor's current portfolio. The factor by which the risk premium is scaled is determined by the investor's risk tolerance and desired level of risk. However, the statement in choice B suggests that the risk premium is scaled by a factor of 11ead646_4199_6d4b_93a1_d723171b720f_TB7031_11, which is not accurate.

Which of the Following Statements Is FALSE