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Which of the following statements are FALSE? The CAPM identifies the market portfolio as the efficient...

Which of the following statements are FALSE?

  1. The CAPM identifies the market portfolio as the efficient portfolio.
  2. 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.
  3. If investors have homogeneous expectations, then each investor will identify the same portfolio as having the highest Sharpe ratio in the economy.
  4. The market portfolio contains more of the smallest stocks and less of the larger stocks.

III and IV only

I and II only

I and III only

II and IV only
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Answer:

II and IV only

The CAPM basically identifies the market as efficient portfolios as per MARKOWITZ hypothesis. It is not true that the demand surges for the security not being part of the portfolio as it may be avoided due to overpricing. All homogeneous ibvestors will have the highest sharpe raio and we cant conclude anything about the proportion of smaller and larger stocks in the portfolio

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