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. a. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) i Data Table - X What is the expected return of investing in asset Malone? % (Round to two decimal places.) (Click on the following icon in order to copy its contents into a spreadsheet.) What is the standard deviation of the portfolio that invests equally in all three assets M, N, and O? % (Round to two decimal places.) States Boom Normal Recession Probability 2596 5196 24% Asset M Retum 12996 9% 0% Asset N Relum 21% 14% 1 196 Asset Retum 096 996 12% What is the standard deviation of asset M? % (Round to two decimal places.) Print Done By investing in the portfolio that invests equally in all three assets M, N, and O rather than asset Malone, 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.) 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? (Select the best response.) O A. There is not enough information to answer this question. O B. Yes, a portfolio of 50% of asset M and 50% of asset N could reduce the risk to 1.50%. O C. No, none of the portfolios using a 50-50 split reduce risk. OD. Yes, a portfolio of 50% of asset M and 50% of asset O could reduce the risk to 1.50%. Click to select your answer(s). 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. a. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) i Data Table - X What is the expected return of investing in asset Malone? % (Round to two decimal places.) (Click on the following icon in order to copy its contents into a spreadsheet.) What is the standard deviation of the portfolio that invests equally in all three assets M, N, and O? % (Round to two decimal places.) States Boom Normal Recession Probability 2596 5196 24% Asset M Retum 12996 9% 0% Asset N Relum 21% 14% 1 196 Asset Retum 096 996 12% What is the standard deviation of asset M? % (Round to two decimal places.) Print Done By investing in the portfolio that invests equally in all three assets M, N, and O rather than asset Malone, 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.) 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? (Select the best response.) O A. There is not enough information to answer this question. O B. Yes, a portfolio of 50% of asset M and 50% of asset N could reduce the risk to 1.50%. O C. No, none of the portfolios using a 50-50 split reduce risk. OD. Yes, a portfolio of 50% of asset M and 50% of asset O could reduce the risk to 1.50%. Click to select your answer(s)
