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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

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.

States

Probability

Asset M Return

Asset N Return

Asset O Return

Boom

29%

12%

23%

4%

Normal

53%

10%

14%

10%

Recession

18%

4%

3%

12%

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

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