a. What is the expected return of investing equally in all three assets M, N, and O?

________

(Round to two decimal places.)

What is the expected return of investing in asset M alone?

________

(Round to two decimal places.)

What is the standard deviation of the portfolio that invests equally in all three assets M, N, and O?

__________

(Round to two decimal places.)

What is the standard deviation of asset M?

_________

(Round to two decimal places.)

By investing in the portfolio that invests equally in all three assets M, N, and O rather than asset M alone, Sally can benefit by increasing her return by

________ %

and decrease her risk by

_________ %.

(Round to two decimal places.)

b. What is the expected return of a portfolio of 50% asset M and 50% asset N?

___________ %

(Round to two decimal places.)

What is the expected return of a portfolio of 50% asset M and 50% asset O?

______ %

(Round to two decimal places.)

What is the expected return of a portfolio of 50% asset N and 50% asset O?

______ %

(Round to two decimal places.)

What is the standard deviation of a portfolio of 50% asset M and 50% asset N?

_______ %

(Round to two decimal places.)

What is the standard deviation of a portfolio of 50% asset M and 50% asset O?

___________ %

(Round to two decimal places.)

What is the standard deviation of a portfolio of 50% asset N and 50% asset O?

_____%

(Round to two decimal places.)

Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: a. What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset Malone? Hint: Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. b. Could Sally reduce her total risk even more by using assets M and N only, assets M and O only, or assets N and O only? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair. Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Probability 34% 45% 21% Asset M Return 12% 9% Asset N Return 23% 14% 3% Asset O Return 0% 9% Normal Recession 0% 12% Print Done