Which of the following statements is incorrect?
A) The capital market line shows the relationship between return and risk as measured by the standard deviation.
B) The Efficient Market Hypothesis states that security prices fully reflect all available information.
C) The security market line shows the relationship between return and risk as measured by beta.
D) none of these choices are incorrect.

Question

Quizplus · Accepted Answer

All the statements provided are correct in the context of financial theories and models. The capital market line (CML) indeed shows the relationship between the expected return of a portfolio and its risk as measured by standard deviation, representing the risk-return trade-off for efficient portfolios. The Efficient Market Hypothesis (EMH) posits that security prices at any given time fully reflect all available information, making it impossible to consistently achieve higher returns without taking on additional risk. The security market line (SML) illustrates the expected return of a security or a portfolio in relation to its risk as measured by beta, which is the volatility of the security or portfolio in relation to the market as a whole.

Which of the Following Statements Is Incorrect