Which of the following statements is CORRECT 11 An investor

Which of the following statements is CORRECT? 11 An investor can eliminate virtually all market risk if he or she holds a very large a well-diversified portfolio of stocks. o 2) An underpriced security will plot above the security market line. 31 The higher the correlation between the stocks in a portfolio, the lower the risk 4 The capital asset pricing model is based on the market risk premium, standard inherent in the portfolio deviation and the risk-free rate

Solution

For 1st question answer is second option that is underpriced security will plot above the security market line.

For 2nd question

Stock price = Next year dividend/ (required rate of return - growth rate)

10.9 = .75/(.11 - g)

g = 4.12%