You are given the probability distribution of stock returns on Sprouts Farmers Market Inc.

and Natural, Grocers Inc. Portfolio O is made up of 40% of money invested in the Sprouts

stock and 60% in the Natural Grocers stock.

[4 + 1 = 5 Points]

Probability

0.40

0.30

0.30

Sprouts

16%

9%

3%

Natural Grocers

12%

9%

10%

Expected Return 10.0% 10.5%

Standard Deviation5.4222%1.2845%

a) Compute the expected return and standard deviation of returns for Portfolio O.

b) Is there diversification in Portfolio O? Briefly explain.