The final stage in the interview process for an Assistant Financial Analyst at ABC Corporation involves a test of your understanding of basic financial concept. You are given the following memorandum and asked to respond to the questions. Whether or not you are offered a position in Caledonia will depend on the accuracy of your response.

To : Applicants for the position of Financial Analysts

From : Ms. Nurnadia Hassan, CEO, ABC Corporation

Re : A test of your understanding of basic financial concepts

Please respond to the following question:

1. What are the differences between the goals of profit maximization and maximization of shareholder wealth? Which goal do you think is more appropriate?

(20 marks)

2. If an investor holds shares of about 20 different businesses all of the risk is eliminated and the portfolio will give a return equal to the risk-free rate.

(20 marks)