1. You are currently holding portfolio M. You are considering combining M with se- curity X, Y, or Z. There are three possible scenarios listed in the table below. (For instance, in scenario 1 which happens with 20% probability, M will deliver a return of -20%).

Scenarios	1	2	3
Probability	20%	50%	30%
Return of M	-20%	0%	30%
Return of X	-10%	0%	15%
Return of Y	5%	5%	5%
Return of Z	5%	0%	-5%

1. Which of X, Y, and Z is a risk-free security when considered on a standalone basis?

2. Now, you are considering investing 90% in your current portfolio M and in- vesting 10% into X, or Y, or Z.¹ Suppose your goal is only to reduce portfolio risk and you do not care about portfolio return. Which of X, Y, or Z will you choose, and why?