Question
NOTE: ROUND ALL ANSWERS TO TWO DECIMAL PLACES. a. What is the expected return of investing equally in all three assets M, N, and O?
NOTE: ROUND ALL ANSWERS TO TWO DECIMAL PLACES.
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 M alone?
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 M alone, 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 M and 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?
(Multiple choice) 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?
A. Yes, a portfolio of 50% of asset M and 50% of asset O could reduce the risk to 1.50%
B. No, none of the portfolios using a 50-50 split reduce risk.
C. There is not enough information to answer this question.
D. Yes, a portfolio of 50% of asset M and 50% of asset N could reduce the risk to 1.50%
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 only, or assets N and only? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair. a. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places. i Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Normal Recession Probability 34% 53% 13% Asset O Return - 2% Asset M Return 10% 7% - 2% Asset N Return 21% 12% 7% 1% 10% Print Print DoneStep by Step Solution
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