True or false. If your answer is false, you must justify your answer with a one sentence explanation to receive any credit.

1. The theory of diversification says that we can eliminate unsystematic risk in an equity portfolio by holding a sufficient number of securities.

2. The CAPM predicts that a security with a beta of 0 will have an expected return of 0.

3. If asset A and asset B both have an expected return of .1, then any portfolio with positive weights on A and B (and no other investments) must also have an expected return of .1.

4. If we are comparing 2 securities trading on the New York Stock Exchange, the one with the lower beta will have the higher expected rate of return.