4. Answer whether each of the following statements is correct and explain your argument. Total: 20 marks.

1. (a) The variance of a well-diversified portfolio is zero. (5 marks)

2. (b) Under an index model, the correlation between two well-diversified portfolios is one. (5 marks)

3. (c) Well-diversified portfolios with a positive are overpriced. (5 marks)

4. (d) An arbitrage portfolio arises when two or more security prices enable investors to construct

   a zero-investment portfolio that will yield a positive expected return. (5 marks)