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investment finance about investment 4. Comment whether the following statements are true or false. Explain your argument. (1) If the single index model works, the
investment finance about investment 4. Comment whether the following statements are true or false. Explain your argument. (1) If the single index model works, the total risk of a portfolio approaches zero as diversification increases. (2) Assume that stock market returns do not resemble a single-index structure. An investment fund analyses 40 stocks in order to construct a mean-variance efficient portfolio. They need to calculate 820 variance-covariance inputs. (3) Assume the investors find that the residuals of individual risky securities calculated using the single index model R= ai + BiRm +e; are correlated. In other words, Cov(ei, 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
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