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True or false and why? 5. If all investors in the market become less risk-averse, the...

True or false and why?
5. If all investors in the market become less risk-averse, the slope of the Security Market alone (SML) will decrease.
6. If an investor purchase a enough stocks (say, S&P500 index), the investor can eliminate all of the market risk embedded in those stocks.
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5. True. The slope of the SML represents the market risk premium i.e Rm-Rf. As investors become less risk averse, their expectation for returns against the risk they take decreases and therefore the Rm decreases and so does Rm-Rf.

6. False, market risk cannot be diversifies away. There will be some scenarios like natural calamity, economic slowdown etc which will affect all companies and securities irrespective of the the sector they operate in. Market risk is also called non-diversifiable risk/Systematic risk.

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