Benefits ofdiversification.

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

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.

Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Normal Recession Probability 32% 55% Asset M Return 12% 9% 0% Asset N Return 23% 14% 3% Asset O Return 0% 9% 13% 12% Print Done