States	Probability	Asset M Return	Asset N Return	Asset O Return
Boom	26%	13%	22%	5%
Normal	55%	11%	15%	11%
Recession	19%	5%	2%	13%

Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three asset. 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.

1) What is the expected return of investing equally in all three assets M, N, and O? _%(round to two decimal places)

2) What is the expected return of investing in asset M alone? _ % (Round to two decimal places.)

3)What is the standard deviation of the portfolio that invests equally in all three assets M, N, and O? __%(Round to two decimal places.)

4)What is the standard deviation of asset M? ___ %(Round to two decimal places.)

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__%. (Round to two decimal places.)