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Hello sir, why this sentence is false?
” Total risk can be best reduced by investing in fully diversified portfolio?”
What makes it difference from capm? capm assumes investors hold a well-diversified portfolio
CAPM does assume that and that therefore risk has been reduced by diversification.
CAPM does not reduce risk. It simply means that the more the systematic risk the more return we demand, on the assumption that unsystematic risk has been removed by diversification.
we could reduce total risk even more by investing solely in government securities and then having zero risk.
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