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?

b. 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? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair.

States		Probability		Asset M Return		Asset N Return		Asset O Return
Boom		34%		10%		19%		2%
Normal		53%		7%		12%		7%
Recession		13%		2%		1%		10%