four You are the company accountant with a medium-sized, privately owned company. The company has surplus funds which it does not believe it will be able to invest in company operations for at least five years. The majority shareholders are also the directors of the company and they do not wish the surplus funds to be distributed as dividends. A board meeting has therefore been called to discuss the proposal that the funds be invested in a portfolio of medium to long-term securities. Three of the directors have recently attended a short course at the local university on Investment and Management of Risk. They make the following comments at the meeting, based on their interpretations of what they have learnt on the course; If we hold a portfolio of stocks, we need only consider the systematic risk of the securities. As a cautious investor we must always consider total risk. We should not buy anything if the expected return is less than the market as a whole, and certainly not if it is below the return on the risk-free asset. Required (a) Discuss the statement portfolio overall risk can always be reduced by including another asset to it. (b) Critically assess the merits of using modern portfolio theory to make portfolio choice decisions. (c) Evaluate the possible reasons for diminishing international diversification benefit