Which of the following statements is FALSE?
A) The Sharpe ratio if the portfolio tells us how much our expected return will increase for a given increase in volatility.
B) We should continue to trade securities until the expected return of each security equals its required return.
C) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio.
D) If security i's required return exceeds its expected return, then adding more of it will improve the performance of the portfolio.

Question

Quizplus · Accepted Answer

This statement is FALSE. If a security's required return exceeds its expected return, adding more of it to the portfolio will actually decrease the portfolio's expected return. This is because the security is not providing enough return to compensate for its risk, and adding more of it only increases the overall risk of the portfolio.

Which of the Following Statements Is FALSE