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 M alone?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.

States	Probability	Asset M Return	Asset N Return	Asset O Return
Boom	28%	13%	22%	5%
Normal	52%	11%	15%	11%
Recession	20%	5%	2%	13%