Question

In: Finance

Which of the following statements is​ FALSE? A. When an investor chooses her optimal​ portfolio, she...

Which of the following statements is​ FALSE?

A. When an investor chooses her optimal​ portfolio, she will do so by finding the tangent line using the risk-free rate that corresponds to her investment horizon.

B. Even though different investors may research different​ stocks, their information will not impact the market portfolio since there is no way to share this information with other investors.

C. In the real​ world, borrowers pay higher interest rates than savers receive.

D. If the market portfolio is not​ efficient, savvy investors who recognize that the market portfolio is not optimal will push prices and expected returns back into balance.

Solutions

Expert Solution

Answer - Even though different investors may research different​ stocks, their information will not impact the market portfolio since there is no way to share this information with other investors.

Reason - Market portfolio means a portfolio comprised in such a way that it contains shares of all sectors in same proportion as it is in market itself, which makes it move up and down in the same proportion as in market.

Market portfolio provides same return as market, so it can be said that in any given situation of market this portfolio will provide highest possible return at any given risk.

Now, different investors research different stocks and the information is shared in the market.

For example if a company is about to merge with other company and it is probable that the merger will be profitable, the news and research of few investors will reach other investors in market by various means of formal and informal communication like television, social media or spread of word and the demand for share will increase which will inturn increase the price of the share in market.

So it is false that the research of investors doesn't effect market portfolio.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Which of the following statements is FALSE? A. The volatility of a portfolio depends on the...
Which of the following statements is FALSE? A. The volatility of a portfolio depends on the correlation between the securities in the portfolio. B. The volatility declines as the number of stocks in a portfolio grows. C. We say a portfolio is an efficient portfolio whenever it is possible to find another portfolio that is better in terms of both expected return and volatility. D. An investor seeking high returns and low volatility should only invest in an efficient portfolio.
An investor chooses to invest 60% of a portfolio in a risky fund and 40% in...
An investor chooses to invest 60% of a portfolio in a risky fund and 40% in a T-bill fund. The expected return of the risky portfolio is 17% and the standard deviation is 27%. The T-bill rate is 7%. What is the expected return and the standard deviation of the investor? What is the Sharpe ratio of the risky portfolio and the investor’s overall portfolio? Suppose the investor decides to invest a proportion (y) of his total budget in the...
Which of the following statements are correct? i) An investor controls an investee when the investor...
Which of the following statements are correct? i) An investor controls an investee when the investor is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. ii) Power arises from rights such as voting rights. iii) Variable return of the investee are as a result of the investees performance, which can be both positive or negative. iv) Control over the investee...
Which of the following statements is correct? A) In the short run, if a firm chooses...
Which of the following statements is correct? A) In the short run, if a firm chooses to produce no output (i.e., shut down) its total costs of production will equal its total fixed costs. B) A firm minimizes its total costs of production when average variable cost is minimized. C) If a firm decides to shut down, its short-run total costs will equal 0. D) As a firm increases output in the short run, the change in total costs is...
Which of the following statements is FALSE?
 Which of the following statements is FALSE? meiosis creates genetic diversity in sexually reproducing organisms gametes are haploid cells produced by meiosis mitosis produces four genetically identical daughter cells  somatic cells are diploid cells produced by mitosis
Which of the following statements is FALSE?
Which of the following statements is FALSE?a. The rate of second order reactions is dependent on concentration.b. The rate of a first order reaction is dependent on concentraion.c. The half life of a second order reaction is not dependent on concentration.d. The half life of a zero order reaction is dependent on concentration.e. None of the statements are FALSE.
Which of the following statements is false?
Which of the following statements is false? a. A discouraged worker is not counted as an unemployed worker b. The frictional unemployment rate is greater than the natural unemployment rate. c. The natural unemployment rate is greater than the structural unemployment rate d. The natural unemployment rate is equal to the sum of the frictional unemployment rate and the structural unemployment rate.
Are the following statements true or false? If false, correct them. 1.An investor who wishes to...
Are the following statements true or false? If false, correct them. 1.An investor who wishes to sell shares immediately should ask his or her broker to enter a limit order. 2.Then ask price is less than bid price. 3.An issue of additional shares of stock to the public by Microsoft would be called IPO. 4. An ECN (Electronic Communication Network) is a computer link used by security dealers primarily to advertise prices at which they are willing to buy or...
Which of the following statements is FALSE? A. When a bondissuer’s default probability increases, its...
Which of the following statements is FALSE? A. When a bond issuer’s default probability increases, its YTM decreases. B. Yield to Maturity (YTM) is set by market. C. When YTM changes over time, coupon rate and coupon payments remain the same. D. Coupon rate is determined by the bond issuer.
Which of the following statements is false? When deductible, the interest tracing rules require that the...
Which of the following statements is false? When deductible, the interest tracing rules require that the proceeds from home equity debt be used to acquire or improve the residence in order for the interest thereon to be deductible. The interest tracing rules require interest expense to be allocated in the same manner in which the proceeds from the loan are used to pay the various types of expenditures. Acquisition Indebtedness is debt that is incurred to acquire, construct, or improve...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT