Q7

a)

The idea that there is a limit to the reduction of portfolio risk due to diversification is

		supported in theory, but not supported empirically.
		supported both in theory and by empirical evidence.
		contradicted by the single-index model.
		contradicted by the CAPM.
		contradicted by both the CAPM and the single-index model.

b)

Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios?

		The multifactor APT
		Neither the CAPM nor the multifactor APT
		The CAPM
		None of the options are correct.
		Both the CAPM and the multifactor APT