Which of the below statements is FALSE?

Question

Quizplus · Accepted Answer

The statement that empirical tests find evidence of significant curvature in the risk/return relationship is false. The CAPM assumes a linear relationship between risk and return, but there is evidence that the relationship is not always linear, especially for very low or very high levels of risk. However, the statement in option D suggests that there is significant curvature in the relationship, which is not true. Option A is true – the CAPM is a model of expected returns, and it is difficult to test this directly using realized returns. Option B is also true – the expected risk premium can be calculated as the product of beta and the market risk premium. Option C is partially true – empirical studies generally find a positive relationship between beta and realized returns, but the estimate of the market risk premium is often lower than predicted by the CAPM.

Which of the Below Statements Is FALSE