True or False? Explain.

1)According to the CAPM, investors require a higher return to hold securities that are highly volatile.

2)According to the CAPM, all risky assets must have positive risk premium.

3)If a stock lies below the security market line in the CAPM, it is under valued.

4)In the CAPM, the proportion invested in the Market portfolio is the same for all investors.

Please refer below explanation for detailed answer.

Step-by-step explanation

1. False.  Highly volatile stocks which fluctuates with  market, consists of both systematic or diversifiable risk and unsystematic risks. 

Total volatility = Systematic +Unsystematic risk.

Investors require a risk premium only for bearing systematic risk which is also known as undiversifiable or market risk. 

2.False. A risky asset whose return is negatively correlated with the market has a negative beta and negative risk premium. Here is formula to calculate for risk premium,  

r_i-r_f= Risk premium.

3. False. SML is used in determining if a security that is considered for investment offers a reasonable return for the amount of risk taken by investors.  A security plotted above the security market line SML is considered undervalued and one that is below security market line SML is overvalued because investor accept a small return for systematic risk associated. Which means expected return doesnot overcome inherent risks.

4. True. If All investors will hold  same portfolio for risky assets then it must be market portfolio because it is optimal risk portfolio which gives highest attainable return for given risk. The proportion of each security is it's market value as % of total market value. Market portfolio is aggregate of all risky portfolios and has same weights.