1. Thomas created a portfolio by investing 75 percent of his funds in a risky asset with an expected rate of return of 16% and a variance of 20%. He invests 25 percent in a risk-free asset that has a return of 3% percent. Find the standard deviation of his portfolio. Round intermediate steps to four decimals. (show work)

2.

Which statement about portfolio diversification is correct?

		Proper diversification can eliminate systematic risk.
		The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.
		Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
		Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.