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1.

Ray was trying to increase the diversification to Candace’s portfolio. Through Portfolio diversification Ray is trying to minimize or eliminate Candace’s exposure to company-specific risk, minimize or reduce systematic risk and moderate the short-term effects of individual asset class performance on portfolio value. Ray is trying to create a well-conceived portfolio for Candace; this can be accomplished at a minimal cost in terms of expected return. Such a portfolio would be considered to be a well diversified. Within diversification, I think Ray is trying to achieve vertical diversification. This way the correlation factors within the entire portfolio will be a mix. This will minimize all kinds of risk as well as maximizes the portfolio profit.

2.

With equal weights in each investment stocks, the amount of investment in each component is equal. With equal dollar investment, there will be 15 different combinations of portfolios that will be created. They are (1) Exon (2) General-Mills (3) 3M (4) Sears (5) Exxon-General Mills (6) Exxon-3M (7) Exxon-Sears (8) General Mills-3M (9) General Mills-Sears and (10) Sears-3M (11) Exxon-Gerneral-Mills- 3M (12) General-Mills-3M-Sears (13) 3M-Sears-Exxon (14) Sears-Exxon-General-Mills (15) Exxon-General-Mills-3M-Sears.

Without equal dollar investment, there will be infinite number of combinations of portfolios that will be created because there are no rules to what the dollar amount has to be in each stock and thus in the portfolio. The reason for this is that one stock could have a dollar of stock while the others could all the rest. More over using the permutation and combinations will give you and infinite number of possibilities. There are no ways to calculate this in a normal ways.

3.

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