1. Consider the following possible rates of returns on stock A, stock B, and stock C over the next year:

State of economy	Probability of state occurring	Return on stock A	Return on stock B	Return on stock C
Recession	0.2	-6%	18%	-5%
Normal	0.5	10%	6%	8%
Boom	0.3	16%	-18%	10%

1. What will be the expected return and standard deviation of your investment, if you invest $4,800 in stock A, $3,600 in stock B, and $3,600 in stock C for one year? What will the expected return, if the holding period is 7 months? (6 marks)
2. Are there diversification benefits associated with forming the portfolio in part (d)? Explain why or why not. (3 marks)