TOPIC 2: PORTFOLIO MANAGEMENT AND ASSET PRICING THEORY 1. State whether the following statements are TRUE or FALSE and justify your answer. a. b. C. The most important characteristic in determining the risk of well-diversified portfolio is the variances of the individual securities in the portfolio. Diversification in an investment can effectively remove all risk. A risky security cannot gave an expected return that is less than the risk free rate because no risk-averse investor could be willing to hold this security in equilibrium (6 marks)