Question

When the CAPM assumptions hold, which of the following statements is FALSE?

a) The capital market line goes through a risk-free asset

b) The capital market line goes through the market portfolio

c) The efficient frontier goes through a risk-free asset

d) The security market line goes through the market portfolio

Answer #1

**Answer: - Option (c) - The efficient frontier
goes through a risk-free asset**

**( Explanation:-** When CAPM assumptions hold,
then whether it is capital market line or security market line,
both goes through market portfolio and also capital market line
goes through a risk-free asset. So, option (a), (b) and (d) are
true. And if we observe then efficient frontier does not go through
a risk-free asset if CAPM assumptions hold, hence option (c) is
false.)

Which of the following statement is FALSE? Group of answer
choices
When using all risky assets available in the market in the
market and the risk-free asset to form portfolio, we find that all
efficient portfolios are on the Capital Market Line (CML).
If the CAPM holds, then all assets will graph on the Security
Market Line (SML).
If an asset graph above the SML, then this asset is under-priced
according to the CAPM.
Portfolios on the Capital Market Line...

In a world where the assumptions of CAPM applied which of the
following statements would be correct? I. All investors will hold
the market portfolio, which includes all the risky assets in the
world. II. Investors' complete portfolio will vary depending on
their risk aversion. III. The return per unit of risk will be
identical for all individual assets. IV. The market portfolio will
be on the efficient frontier and it will be the optimal risky
portfolio. Group of answer...

State whether each of the following is inconsistent with an
efficient capital? market, the? CAPM, or? both:
a. A security with only diversifiable risk has an expected
return that exceeds the? risk-free interest rate.
b. A security with a beta of 1 had a return last year of? 15%
when the market had a return of? 9%.
c. Small stocks with betas of 1.5 tend to have higher returns on
average than large stocks with betas of 1.5.??
a. A...

Which of the following statements about the Capital Asset
Pricing Model (CAPM), which is the “father” of the Security Market
Line (SML), is most correct?
A
The CAPM is based on a restrictive set of assumptions.
B
It has not been empirically verified.
C
In general, its inputs are difficult to estimate.
D
In spite of its deficiencies, it provides investors with a
rational way of thinking about required rates of return.
E
All of the above responses are correct.

Which of the following is not true about the Capital Market
Line, the Security Market Line, and the Security Characteristic
Line?
Multiple Choice CML is the line that goes through the risk-free
asset and the optimal risky portfolio
SML has beta on the x-axis
The y-axis for SCL has the excess return on the market
The slope of SCL is beta

Which of the following statements are FALSE?
The CAPM identifies the market portfolio as the efficient
portfolio.
If some security were not part of the efficient portfolio, then
every investor would want to own it, and demand for this security
would increase causing its expected return to fall until it is no
longer an attractive investment.
If investors have homogeneous expectations, then each investor
will identify the same portfolio as having the highest Sharpe ratio
in the economy.
The market...

Assume a world in which the assumptions of the capital asset
pricing model (CAPM) hold. A company can invest in a project which
costs today $5,000, in one year delivers $2,000 with certainty and
in two years delivers -$1,000 with a probability of 25% and $8,000
with a probability of 75%. Suppose the annual risk free rate is 3%,
the expected return on the market is 10% and the project’s market
beta is 1.5. Should the company invest in the...

Which of the following statements is (are) false? Question
options:
a. All mean-variance efficient portfolios are combinations of
the market portfolio and the risk-free asset
b. If two mean-variance efficient portfolios are combined, the
result is a mean-variance efficient portfolio
c. If the market portfolio is the tangency portfolio, then the
relationship between risk and return is best described as
parabolic
d. All of the above are true statements

Which of the following statements is (are) false? Question
options:
a. All mean-variance efficient portfolios are combinations of
the market portfolio and the risk-free asset
b. If two mean-variance efficient portfolios are combined, the
result is a mean-variance efficient portfolio
c. If the market portfolio is the tangency portfolio, then the
relationship between risk and return is best described as
parabolic
d. All of the above are true statements
(already picked "b" and it was wrong).

Which of the following statements is false?
A
When a stock’s alpha is not zero, investors can improve upon the
performance of the market portfolio.
B
An important conclusion of the CAPM is that only sophisticated
investors with superior trading skills should hold the market
portfolio (combined with risk-free investments).
C
The Sharpe ratio of a portfolio will increase if the investor
buys stocks whose expected returns exceed their required returns,
that is, if he buys stocks with positive alphas....

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