Question 3 Which of the following statements is (are) false regarding the variance of a portfolio of two risky securities? The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. A and B. A and C.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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