8-8 What is an efficient portfolio? How can the return and standard deviation of a portfolio be determined? 8-9 Why is the correlation between asset returns important? How does diversification allow risky assets to be combined so that the risk of the portfolio is less than the risk of the individual assets in it? 8-10 How does international diversification enhance risk reduction? When might international diversification result in subpar returns? What are political risks, and how do they affect international diversification? 8-11 How are total risk, nondiversifiable risk, and diversifiable risk related? Why is nondiversifiable risk the only relevant risk? 8-12 What risk does beta measure? How can you find the beta of a portfolio? 8-13 Explain the meaning of each variable in the capital asset pricing model (CAPM) equation. What is the security market line (SML)? 8-14 What impact would the following changes have on the security market line and therefore on the required return for a given level of risk? (a) An increase in inflationary expectations. (b) Investors become less risk averse