Fundamentals of Investment: Finance

2) Trudy Dudley, CFA, recently met with one of her newly retired clients. For such clients, Trudy typically invests in a master list of 30 securities drawn from several industries and a combination of AAA-rated corporate bonds and U.S. Treasury STRIPS. After the meeting concluded, the client made the following statement: I trust your stock-picking ability and believe that you should invest my funds in your five best stock ideas. Why invest in a combination of 30 stocks and bonds when you obviously have stronger opinions on a few of the stocks that promise far higher returns? Trudy plans to respond to her client within the context of modern portfolio theory. What should Trudy tell her client?