Which of the following statements is FALSE?
A)The beta of a portfolio is the weighted average beta of the securities in the portfolio.
B)The expected return of a portfolio should correspond to the portfolio's beta.
C)By holding a negative-beta security, an investor can reduce the overall market risk of her portfolio.
D)Graphically, the line through the risk-free investment and the market portfolio is called the capital market line (CML).

Question

Quizplus · Accepted Answer

The statement D is false because the line through the risk-free investment and the market portfolio is called the Capital Market Line (CML) when all portfolios considered are made up of the market portfolio and the risk-free asset. However, the line that represents the relationship between the expected return and beta (systematic risk) of all possible portfolios is called the Security Market Line (SML). The CML is specific to the efficient frontier of risky assets combined with a risk-free asset, while the SML applies to all assets in the market, including individual securities.

Which of the Following Statements Is FALSE