If the Single Index Model is correct, then as a portfolio is broadly diversified, the variance of
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Question:
If the Single Index Model is correct, then as a portfolio is broadly diversified, the variance of the return on the portfolio:
A:Should fall, and the residual variance should be negative.
B:Should fall, but the residual variance should remain constant.
C:Should usually fall, and the residual variance should be approximately equal to zero.
D:Should rise, with the residual variance being approximately equal to zero.
E:Should not be changed.
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