Question: 8. (5) True or false or Uncertain. Explain briefly. By the CAPM, stocks with the same beta have the same variance If CAPM holds, should

8. (5) True or false or Uncertain. Explain briefly.

  1. By the CAPM, stocks with the same beta have the same variance
  2. If CAPM holds, should be zero for all assets.
  3. Optimal portfolios should exclude individual assets whose expected return and risk (measured by its standard deviation) are dominated by other available assets.
  4. A stock with high standard deviation may contribute less to portfolio risk than a stock with lower standard deviation.
  5. Diversification reduces the expected return on the portfolio as its risk decreases.

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