Question

True or False

15. A portfolio consisting of securities that are highly correlated is well diversified.

​​​​​​​16.​​​​​​​​​​​​​​The expected return on an investment includes both the expected of income plus expected price

appreciation.

17.The capital asset pricing model specifies the required return adjusted for systemic risk.

Answer 1

Answer 15

To have a well diversified Portfolio, securities chosen shall have less correlation. Because of less correlation, returns shall be more in comparison to Risk. It means at less risk, more return will be there, if securities are less correlated.

So this statement is False that portfolio consisting of securities that are highly correlated is well diversified.

Answer 16

Expected return on Assets = Dividend means income + (Price closing - price opening)

So, expected return includes both income as well as price appreciation.

So, the statement is true that expected return on an investment includes both the expected of income plus expected price appreciation.

Answer 17

Capital asset pricing model formula for required return = Risk free rate of return + (Beta * Market risk premium)

Required return as per CAPM adjust for Beta coefficient. Beta denotes systematic risk. CAPM specifies that required return of stock should be adjusted for Systematic risk or Beta.

So, the statement is true that the  capital asset pricing model specifies the required return adjusted for systemic risk.