T OR F QUESTIONS

1.The CAPM estimates the required rate of return on a stock held as part of a well diversified portfolio.

2.Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

3.Modern portfolio theory seeks to minimize risk and maximize return by combining highly correlated assets.

4.Both modern portfolio theory and traditional portfolio management result in diversified portfolios, but they take different approaches to diversification.