Question

5. Which of the following statements is​ FALSE? A. It is not actually necessary to identify the efficient portfolio itself. All that is required is to identify a collection of portfolios from which the efficient portfolio can be constructed. B. Although we might not be able to identify the efficient portfolio​ itself, we know some characteristics of the efficient portfolio. C. An efficient portfolio need not be well diversified. D. An efficient portfolio can be constructed from other diversified portfolios.

Answer 1

A well balanced and well-diversified portfolio includes bonds, gold, stocks etc. The inclusion of different securities decreases the entire portfolio risk as all these different beta and thus respond differently to market risk, hence if one security goes down, the entire portfolio will also not go down with that security.

hence the false statement is:

C. An efficient portfolio need not be well diversified.

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