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
Related questions
Question
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4d26b270-cc71-4063-87dd-ee239d290c03%2Fed47214f-0bda-4f26-9de2-ecb78ef8ea71%2Fv6uq2rn_processed.png&w=3840&q=75)
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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