Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: LOADING.... 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		32%		14%		24%		2%
Normal		50%		11%		16%		11%
Recession		18%		2%		4%		14%

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

nothing%

(Round to two decimal places.)

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

nothing%

(Round to two decimal places.)

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

nothing%

(Round to two decimal places.)

What is the standard deviation of asset M?

nothing%

(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

nothing%

and decrease her risk by

nothing%.

(Round to two decimal places.)

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

nothing%

(Round to two decimal places.)

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

nothing%

(Round to two decimal places.)

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

nothing%

(Round to two decimal places.)

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

nothing%

(Round to two decimal places.)

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

nothing%

(Round to two decimal places.)

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

nothing%

(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.)

A.

There is not enough information to answer this question.

B.Yes, a portfolio of 50% of asset M and 50% of asset O could reduce the risk to

1.50%.