Mr Jackson has approached you for an advice on how best to invest his savings. You proposed that he can invest all his savings in shares of Facebook, or all his savings in Walmart. Alternatively he could diversify his investment between these two share companies. There are three possible states of the economy, boom, growth or recession, and the returns on Facebook and Walmart depend on which state will occur.

State of economy	Probability of growth occuring	Facebook return (%)	Walmart return (%)
Boom	0.3	40	10
Growth	0.4	30	15
Recession	0.3	-10	20

1.1 Calculate the expected return, variance and standard deviation for each share (10 marks)

1.2 Calculate the expected return, variance and standard deviation for the following diversifyng allocation of Mr Jackson's savings:

(a) 50% in Facebook, 50% in Walmart (5 marks)

(b) 10% Facebook, 90% walmart (5 marks)

1.3 Explain the relationship between risk reduction and the correlation between individual financial security returns ( 5 Marks)