Suppose therisk-free interest rate is 4%, and the stock market will return either +30% or 16% eachyear, with each outcome equally likely. Compare the following two investmentstrategies: (1) invest for one year in therisk-free investment, and one year in themarket, or(2) invest for both years in the market.

a. Which strategy has the highest expected finalpayoff?

b. Which strategy has the highest standard deviation for the finalpayoff?

c. Does holding stocks for a longer period decrease yourrisk?