Which of the following statements is FALSE?
A)Because all other risk is diversifiable,it is an investment's beta with respect to the efficient portfolio that measures its sensitivity to systematic risk,and therefore determines its cost of capital.
B)If a security's expected return exceeds its required return given our current portfolio,then we can improve the performance of our portfolio by adding more of the security.
C)The appropriate risk premium for an investment can be determined from its beta with the efficient portfolio.
D)As we buy shares of a security i,its correlation with our portfolio P will increase,ultimately raising its required return until E[Ri] = Rp.

Question

Quizplus · Accepted Answer

The correlation of a security with a portfolio does not necessarily increase as more shares are bought. The required return is determined by systematic risk, not by the correlation with the portfolio.

Which of the Following Statements Is FALSE