Consider an economy with two types offirms, S and I. S firms all move together. I firms move independently. For both types offirms, there is a 29% probability that the firms will have a 10% return and a 71% probability that the firms will have a 1% return. Plot the volatility as a function of the number of firms in the two portfolios.

The standard deviation of type S stock is ............ %. (Round to two decimalplaces.)

The correct plot of the volatility of type S stock as a function of the number of firms is (graph 1 or graph 2)