Question

Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets. What are her expected returns and the risk from her investment in the three​ assets? How do they compare with investing in asset M​ alone?  Hint​: Find the standard deviations of asset M and of the portfolio equally invested in assets​ M, N, and O.   States Probability Asset M Return Asset N Return Asset O Return   Boom 31​% 14​% 24​% 2​%   Normal 52​% 11​% 16​% 11​%   Recession 17​% 2​% 4​% 14​% What is the expected return of investing equally in all three assets​ M, N, and​ O? 6.6732.6730.66 11.85​% ​(Round to two decimal​ places.) What is the expected return of investing in asset M​ alone? 13.3410.40 10.40​% ​(Round to two decimal​ places.) What is the standard deviation of the portfolio that invests equally in all three assets​ M, N, and​ O?

Answer 1