Question 7 Please Answer all 5 Parts

Data for Question:

States Probability Asset M Return Asset N Return Asset O Return Boom 35% 12% 21% 4% Normal 45% 10% 14% 10% Recession 20% 4% 1% 12%

Benefits of

diversification.

Sally Rogers has decided to invest her wealth equally across the following three assets:

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. 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.

Question content area bottom

Part 1

What is the expected return of investing equally in all three assets M, N, and O?

enter your response here%

(Round to two decimal places.)