Consider three bonds, each promising to pay $100 in 10 years. The first bond is ABC bond that always pays. The other two are BCD bond and CDF bond, which may pay the full $100 dollars, or may default and only pay $0, The corresponding probabilities of these events occurring are:

	CDF pays 100	CDF pays 0
BCD pays 100	0.25	0.4
BCD pays 0	0.2	0.15

Deciding to diversify, you buy 30% of the ABC bond, 60% of the BCD bond and 10% of the CDF bond. What is the expected value and variance of this portfolio?

(a) E[rp] = 43.5, V ar(rp) = 492.75

(b) E[rp] = 43.5, V ar(rp) = 592.75

(c) E[rp] = 73.5, V ar(rp) = 692.75

(d) E[rp] = 73.5, V ar(rp) = 792.75