NOTE: Round all answers to two decimal places.

QUESTIONS TO ANSWER:

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

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

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

4. What is the standard deviation of asset M?

5. 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 decreasing her risk by _________%.

Benefits of diversification. 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 Malone? Hint: Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. What is the expected return of investing equally in all three assets M, N, and O? 1 % (Round to two decimal places.) 0 Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Normal Recession Probability 28% 46% 26% Asset M Return 10% 8% 2% Asset N Return 21% 12% 1% Asset O Return 2% 8% 10% Print Print Done