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 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. a. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Probability 33% Normal 51% Recession 16% Asset M Return 14% 11% 2% Asset N Return Asset O Return 23% 2% 16% 11% 3% 14% Print Done - X
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 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. a. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Probability 33% Normal 51% Recession 16% Asset M Return 14% 11% 2% Asset N Return Asset O Return 23% 2% 16% 11% 3% 14% Print Done - X
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 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.
a. What is the expected return of investing equally in all three assets M, N, and O?
% (Round to two decimal places.)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
States
Boom
Probability
33%
Normal
51%
Recession
16%
Asset M Return
14%
11%
2%
Asset N Return
Asset O Return
23%
2%
16%
11%
3%
14%
Print
Done
- X
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