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1. True or False: risk-free asset should provide a return of 0%. Explain. 2. True or...

1. True or False: risk-free asset should provide a return of 0%. Explain.

2. True or False: As the market portfolio is perfectly diversified, it is risk-free. Explain.

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Answer #1

1. The given statement is FALSE as risk free security is will be providing more than the return of 0% as they will be just adjusting themselves for Risk but their return is not completely providing 0% percentage, For an example we can say in case of treasury bills, which is providing a return of more than 0%, even it is termed as a risk free security.

2. The given statement is FALSE as diversification will just be eliminating the unsystematic risk of the portfolio and it will not be eliminating the systematic risk of the portfolio so even the portfolio is diversified, and the market risk will still be present and the portfolio will not be completely risk free.

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