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Which of the following statement is FALSE? Group of answer choices When using all risky assets...

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 (CML) contains both systematic and unsystematic risk.

The slope of the Security Market Line (SML) is represented by the market risk premium.

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Answer #1

The false statement is portfolios on capital market line (CML) contains both systematic and unsystematic risk

Explanation:-Capital market line represents all the portfolios which optimally combine market portfolio and risk free asset .As per CAPM when we invest in market portfolio with lending and borrowing at risk free rate then unsystematic risk gets eliminated and the risk which is relevant for us is only systematic or market risk .

Security market line is the graph between Required return and beta and therefore its slope is market risk premium

Any asset which graph above SML ,it means it is yielding higher return with the same amount of beta and hence it is underpriced

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