Benefits of diversification Sally Rogers has decided to invest her wealth equally across the following three assets. a. What are her expected retums 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 Mand 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 Nonly, assets Mand only, or assets and 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 Return Boom 31% 13% 22% Normal 46% 15% 10% Rocession 23% 2% 10% 1% 13% a. What is the expected return of investing equally in all three assets M, N, and O? What is the expected return of investing in asset Malone? What is the standard deviation of the portfolio that invests equally in all three assets M, N, and O? What is the standard deviation of asset M? 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..... b. What is the expected return of a portfolio of 50% asset Mand 50% asset N? What is the expected return of a portfolio of 50% asset M and 50% asset O? What is the expected return of a portfolio of 50% asset N and 50% asset O? What is the standard deviation of a portfolio of 50% asset M and 50% asset N? What is the standard deviation of a portfolio of 50% asset M and 50% asset O? What is the standard deviation of a portfolio of 50% asset N and 50% asset O? 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