Suppose that your 58-year-old father works for the Ruffy Stuffed Toy Company and has contributed regularly to his company-matched savings plan for the past 15 years. Ruffy contributes $0.50 for every $1.00 your father puts into the savings plan, up to the first 6% of his salary. Participants in the savings plan can allocate their contributions among four different investment choices: a fixed-income bond fund, a blend option that invests in large companies, small companies, and the fixed-income bond fund, a growth-income mutual fund whose investments do not include other toy companies, and a fund whose sole investment is stock in the Ruffy Stuffed Toy Company. Over Thanksgiving vacation, Dad realizes that you have been majoring in finance and decides to reap some early returns on that tuition money hes been investing in your education. He shows you the most recent quarterly statement for his savings plan, and you see that 98% of its current value is in the fourth investment option, that of the Ruffy Company stock.

a. Assume that your Dad is a typical risk-averse person who is considering retirement in five years. When you ask him why he has made the allocation in this way, he responds that the company stock has continually performed quite well, except for a few declines that were caused by problems in a division that the company has long since sold off. In addition, he says, many of his friends at work have done the same. What advice would you give your dad about adjustments to his plan allocations? Why?

b. If you consider the fact that your dad works for Ruffy in addition to his 98% allocation to the Ruffy stock fund, does this make his situation more risky, less risky, or does it make no difference? Why?