The following table shows a market where there are only three securities, and in the next time period one of three possible outcomes will occur.

State of economy	Probability	Expected Returns
		Low Ltd	Med Corp	Hi Co
Excellent	0.40	23.00%	9.60%	1.20%
Good	0.50	8.10%	6.40%	1.20%
Poor	0.10	-1.90%	2.40%	1.20%

Required:

1. Calculate the expected return for each asset separately.

2. Calculate the standard deviation for each asset separately.

3. Details of the risk and return of two shares are as follows:

Company	Expected return	Standard deviation
AC Co	14.00%	12.50%
DC Corp	21.00%	18.20%

The correlation between the two investments is +0.40

Suppose that an investor decides to create an investment portfolio comprising of:

Share	Amount ($)
AC Co	87,500
DC Corp	162,500

Required:

1. Compute the expected return of the investment portfolio

2. Compute the investment portfolio standard deviation.

3. Discuss the concept of diversification in a portfolio.