CIMA F3 Question Answer
Which THREE of the following statements are correct?
A portfolio can be diversified by increasing the number of securities in different industries held in the portfolio.
Systematic risk can be eliminated in a diversified portfolio.
The beta of a company's shares reflects systematic risk.
A beta of 1 indicates that the investment is risk free.
The security market line (SML) shows the relationship between systematic risk and return.
A. True – holding more securities across different industries reduces unsystematic risk.
B. False – systematic risk (market risk) cannot be diversified away.
C. True – beta measures an investment’s systematic risk relative to the market.
D. False – beta of 1 means same risk as the market, not risk-free.
E. True – the Security Market Line (SML) plots expected return against beta (systematic risk).
So the correct three are A, C and E.
TESTED 13 Feb 2026
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