You form a portfolio that invests 60% of total funds in stock X and 40% in stock Z. Two possible outcomes exist. The probability is 30% that the first outcome occurs, in which case the rates of return equal 20% for X and 40% for Z. The probability is 70% that the second outcome occurs, in which case the rates of return equal 50% for X and 16% for Z. Find the diversification benefit, measured as the standard deviation reduction in basis points (BP). that the portfolio provides (Hint: Calculate the variance of each stock first. Find the average risk (similar to expected returns) and portfolio risk. The diversification benefit is the difference between average risk and portfolio risk.) 727 BP 1,065 BP 968 BP 880 BP 800 BP