1. Justify whether adding securities to the portfolio reduces the portfolio risk as measured by the standard deviation and the benefits of diversification, using historical data to examine the effects including stocks and bonds on a portfolio. Provide support for your justification.
2. An investor ponders various allocations to the optimal risky portfolio and risk-free T-bills to construct his complete portfolio. Predict two ways that systematic risk could affect the investor's plan. Support your prediction with examples.