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Which of the following statements is FALSE? When we form an equally weighted portfolio of stocks and keep increasing the number of stocks in the

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Which of the following statements is FALSE? 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. 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. 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. Suppose at the beginning of the year you invest $56.000 by purchasing 300 shares of American Airlines Group Inc. (AAL) at $70 per share, 400 shares of Tesla Inc. (TSLA) at $50 per share, and 1000 shares of NLS Pharmaceuticals Ltd. (NLSP) at $15 per share. Suppose over the year American Airlines has a return of 28%, Tesla has a return of 14%, and NLS Pharma has a return of 7%. The value of your portfolio at the end of the year is $65,730 $64,650 $64,700 $65.500

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