Benefits of

diversification.

Sally Rogers has decided to invest her wealth equally across the following three assets:

LOADING...

. 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.

Question content area bottom

Part 1

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

(Round to two decimal places.)

Part 2

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

(Round to two decimal places.)

he following icon

in order to copy its contents into a spreadsheet.)

States		Probability		Asset M Return		Asset N Return		Asset O Return
Boom		32%		13%		23%		1%
Normal		47%		10%		15%		10%
Recession		21%		1%		3%		13%