1) Discuss the importance of diversification in portfolio theory.

2) Explain the role the Capital Asset Pricing Model has in investments

Answer:

1: Diversification is a very important tool in the hands of portfolio theory. As Diversification means that idea to create portfolio that includes different investment in order to increase income / return and reduce the risk of an investment decision .With the proper and well structured Diversification which result in better investment decision and compensate profit at higher level available with them in a systematic and logical manner.

2: In an investment, capital asset pricing model plays an utmost importance in the relationship between the systematic risk and expected return from a particular investment .The role of capital asset pricing ratio in determining the use of finance for investment in the risky securities and generating maximum expected return from an asset given the risk of those assets and maintain systematic cost of capital in a systematic and logical manner.While taking a decision , investor should worked in a systematic and logical manner profile .