Imagine that the assumptions of the CAPM hold. The risk of assets comes from systematic
covariance with the market portfolio and from idiosyncratic risk. Identify if each of the following
statements is true or false given this scenario. The
of every asset is above 1 . Select one: True
False The correlation coefficient of every asset with the market portfolio is 1 . Select one: True
False The expected return for every asset lies on the SML when plotted in expected return-
space (the y-axis is expected return and the x-axis is
). Select one: True False
A portfolio of assets provides the same diversification benefit as a single asset with equivalent
beta. Select one: True False