Question 3 You are a client advisor working in an investment advisory firm. On a recent outing with your friends, Mary and Susan, you start to talk about your job. The following conversation between Mary and Susan ensued. Statement 1: Mary: You can reduce your risk by investing in more stocks instead of only one stock. Statement 2: Susan: Oh, I'm currently holding only one stock. So I can invest in any other stock and achieve lower risk, just like that? How do I reduce my portfolio risk without sacrificing return? Statement 3: Mary: My property agent friend managed to make $1 million last year buying and selling houses. I would rather earn my money conservatively, investing in the financial markets. (a) With respect to Statements 1 and 2, elaborate on what Mary said, using your knowledge of portfolio theory. Critique Susan's statement. (10 marks) (b) With respect to Statement 3 , how would you support her statement? (10 marks) (c) Discuss how holding bonds in addition to stocks, rather than holding an all-stock portfolio, would result in lower risk. (5 marks) (d) ODBD bank has just launched a single premium insurance plan underwritten by GF, a member of the ODBD Group. The plan guarantees your capital and returns after a 3year period. It is advertised as earning "1.68\% p.a. guaranteed after 3 years". Your father, who is in excellent health, is interested in investing $100,000 and asks you for investment advice. Explain how the investment works and discuss the factors involved in making a decision whether to invest. (15 marks)