Question
Which of the following statements is FALSE? Group of answer choices The security market line (SML) says that there is a linear relationship between a
Which of the following statements is FALSE?
Group of answer choices The security market line (SML) says that there is a linear relationship between a stock's expected return and its total risk. Stocks in the same industry tend to have more highly correlated returns than stocks in different industries. The reduction in risk (benefit of diversification) in a portfolio depends on the degree to which the stocks are correlated. Stocks have both diversifiable risk and undiversifiable risk, but only undiversifiable risk is rewarded with risk premium. When we form an equally weighted portfolio of stocks and keep increasing the number of stocks in the portfolio, the volatility of the portfolio also decreases.
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