An investor buys 1 share of ABC Ltd at the price of $32 on December 31, 2019. The firm is not expected to pay any dividends. Consider the following three possible scenarios for the share price on December 31, 2020:

• $20 with a probability of 25%.

• $39 if the economy is "moderate", with a probability of 60%.

• $45 if the economy is "bad", with a probability of 15%.

a) Calculate the expected return for holding the share for a year. (2 marks)

b) Calculate the variance of return and standard deviation of return. (2 marks)

c) On January 1, 2021, the share is worth $29.5 and the investor just received a dividend of $2.35. Calculate the total holding period return and dividend yield over the one-year period. (2 marks)

d) Give one example of a diversifiable risk, and one example of a systemic risk. Clearly label your examples. (2 marks)

e) Consider the statement The primary goal of diversification is to minimise risk. Is this true or false? Discuss. (2 marks)