Suppose that you are the financial advisor for Mrs. Sandy. She is interested in investing in two investment funds X and Y. The table below shows the discrete distribution of future one- year return of the two funds in three possible economic states. Mrs. Sandy thinks that the two funds are similar because they have the same expected return, and she would like to buy only one of the two funds.

States	p(s)	X	Y
Boom	0.20	40%	8%
Normal	0.70	5%	8%
Recession	0.10	-25%	18%

Explain to Mrs. Sandy how the two funds also differ in investment risks (4 points).

Explain to Mrs. Sandy why its better that she allocates her money between the two funds instead of investing in only one of them (6 points) (you can explain the question with a specific example of portfolio weights).