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4. Comment whether the following statements are true or false. Explain your argument. (3) Assume the investors find that the residuals of individual risky securities
4. Comment whether the following statements are true or false. Explain your argument. (3) Assume the investors find that the residuals of individual risky securities calculated using the single index model R; = Qi + B;Rm +e; are correlated. In other words, Cov(@i, e;) # O for i # j. They claim they still are able to reduce all firm-specific risk to zero by holding a well-diversified portfolio. (9 marks)
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