nearby . She came over and indicated she had overheard their argument about investments and thought that , given her expertise on financial matters , she might be able to resolve their disagreement . She asked them to explain the crux of their disagreement , and each reviewed his own viewpoint . After hearing their views , Elinor responded , ― I have some good news and some bad news for each of you . There is some validity to what each of you says , but there also are some errors in each of your explanations . Walt tends to support the traditional approach to portfolio management . Shane ’ s views are more supportive of modern portfolio theory .‖ Just then , the company president interrupted them , needing to talk to Elinor immediately . Elinor apologized for having to leave and offered to continue their discussion later that evening . Questions a . Analyze Walt ’ s argument and explain why a mutual fund investment may be overdiversified . Also explain why one does not necessarily have to have hundreds of thousands of dollars to diversify adequately . b . Analyze Shane ’ s argument and explain the major error in his logic relative to the use of beta as a substitute for diversification . Explain the key assumption underlying the use of beta as a risk measure . c . Briefly describe the traditional approach to portfolio management and relate it to the approaches supported by Walt and Shane . d . Briefly describe modern portfolio theory and relate it to the approaches supported by Walt and Shane . Be sure to mention diversifiable risk , undiversifiable risk , and total risk , along with the role of beta . e . Explain how the traditional approach and modern portfolio theory can be blended into an approach to portfolio management that might prove useful to the individual investor . Relate this to reconciling Walt ’ s and Shane ’ s differing points of view . ============================================