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What is the expected return of investing in asset M​ alone

What is the expected return of investing in asset M​ alone

Essentials Of Investments
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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Benefits of

diversification.
 
What is the expected return of investing in asset M​ alone?
### Economic States and Asset Returns The table below illustrates the returns on different assets under various economic conditions. The economic states considered are Boom, Normal, and Recession, each with a corresponding probability of occurrence. The returns for Assets M, N, and O are provided for each economic state. | States | Probability | Asset M Return | Asset N Return | Asset O Return | |------------|-------------|----------------|----------------|----------------| | **Boom** | 32% | 13% | 23% | 5% | | **Normal** | 50% | 11% | 15% | 11% | | **Recession** | 18% | 5% | 3% | 13% | #### Explanation: - **States**: Represents the current economic condition. - **Boom**: A period of rapid economic growth. - **Normal**: A period of stable economic growth. - **Recession**: A period of economic downturn. - **Probability**: The likelihood of each economic state occurring. - **Asset Returns**: - **Asset M Return**: Indicates the return percentage for Asset M in different states. - **Asset N Return**: Represents the return percentage for Asset N across various states. - **Asset O Return**: Shows the return percentage for Asset O under each state. These values are crucial in assessing the performance and risk associated with each asset during different economic conditions, aiding investors in making informed decisions.
Transcribed Image Text:### Economic States and Asset Returns The table below illustrates the returns on different assets under various economic conditions. The economic states considered are Boom, Normal, and Recession, each with a corresponding probability of occurrence. The returns for Assets M, N, and O are provided for each economic state. | States | Probability | Asset M Return | Asset N Return | Asset O Return | |------------|-------------|----------------|----------------|----------------| | **Boom** | 32% | 13% | 23% | 5% | | **Normal** | 50% | 11% | 15% | 11% | | **Recession** | 18% | 5% | 3% | 13% | #### Explanation: - **States**: Represents the current economic condition. - **Boom**: A period of rapid economic growth. - **Normal**: A period of stable economic growth. - **Recession**: A period of economic downturn. - **Probability**: The likelihood of each economic state occurring. - **Asset Returns**: - **Asset M Return**: Indicates the return percentage for Asset M in different states. - **Asset N Return**: Represents the return percentage for Asset N across various states. - **Asset O Return**: Shows the return percentage for Asset O under each state. These values are crucial in assessing the performance and risk associated with each asset during different economic conditions, aiding investors in making informed decisions.
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