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 34% 10% 19% -2% Normal 46% 7% 12% 7% Recession 20% -2% -1% 10%