Which of the following statements is FALSE? A) A portfolio is efficient if it has the highest possible Sharpe ratio; that is it is efficient if it provides the largest increase in expected return possible for a given increase in volatility. B) The required return for an investment is equal to a risk premium that is equal to the risk premium of the investor's current portfolio scaled by . C) Increasing the investment in investment I will increase the Sharpe ratio of portfolio P if its expected return E[R_i] exceeds the required return r_i, which is given by r_i = r_f + × (E[R_p] - r_f). D) If a security i's expected return is less than the required return r_i, we should reduce our holding of security i.

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Quizplus · Accepted Answer

The required return for an investment is not equal to a risk premium scaled by any specific factor. The required return is the minimum return needed to justify the investment, and is based on the investor's individual preferences, risk tolerance, and opportunity cost. 11ea7e60_15af_6dec_ba34_3d73126ec22b_TB1624_11 may refer to a variable or formula, but it is not relevant to determining the required return.

Which of the Following Statements Is FALSE