1 ) Which of the following statements is false a ) Because diversification improves with the number of stocks held in a portfolio , an efficient portfolio should be a large portfolio containing many different stocks . b ) The beta of a security is the sensitivity of the security's return to the return of the overall market . ( ) An efficient portfolio cannot be diversified further ; that is , there is no way to reduce the risk of the portfolio without lowering its expected return I ) We call a portfolio that contains only unsystematic risk an efficient portfolio e ) None of the above 2 ) If the market portfolio has an expected return of 0 12 and a standard deviation of 1 40 , and the risk - free rate is 104 , what is the slope of the security market line 2 ) 0.08 b ) 0.20 ( ) 0.04 d ) 0 . 12 e ) None of the above 3 ) A particular asset has a beta of I and an expected return of 10% . The expected return on the market portfolio is 13% and the risk-free is 5% . Which of the following statement is correct a ) This asset lies on the security market line b ) This asset lies above the security market line ( ) This asset lies below the security market line I Cannot tell from the given information . None of the above