No adjustment is required on the part of the investor when stock prices change in the market portfolio because
A) the markets are semi-strong efficient.
B) the market value is the units of the security outstanding times the historical value of the security.
C) every security is represented in proportion to its market value relative to the market value of the risk free security.
D) their relative market values and their proportions change together.

Question

Quizplus · Accepted Answer

The correct answer is D because in a market portfolio, each security is held in proportion to its market value. When stock prices change, the market values of the securities and their proportions in the portfolio adjust automatically, maintaining the desired balance without the need for the investor to make any adjustments.

No Adjustment Is Required on the Part of the Investor