Question

Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: 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. What is the expected return of investing equally in all three assets M, N, and O? 11.66% (Round to two decimal places.) i Data Table - X (Click on the following icon 2 in order to copy its contents into a spreadsheet.) States Boom Normal Recession Probability 32% 54% Asset M Return 11% 9% 3% Asset N Return Asset O Return 21% 3% 13% 9% 1% Print Done

Answer 1

x] 5 variance of portflio - Excel ? X FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign in > Calibri - 11 Å Wrap Text AutoSumAY Percentage % Cut Be Copy Format Painter PM A TI H Insert Delete Format Fill- Paste BIU- A E 三控 Merge & Center - $ % 4.0 .00 .00 0 Conditional Format as Cell Formatting Table Styles Styles Clear Z Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Cells A B17 fic =B13*C13+B14*C14+B15*C15 A B с D E F G H J K - M L N 1 Portflolio 2 M 0.33 3 N 0.33 0.33 4 o N Probability of state M 32% 54% 14% 11.00% 9.00% 3.00% 21.00% 13.00% 1.00% 3.00% 9.00% 11.00% 5 6 State of Economy 7 Boom 8 Normal 9 Recession 10 11 12 State of Economy 13 Boom 14 Normal 15 Recession 16 17 Expected return 18 Expected return 19 Probability of state Portfolio returns 32% 11.67% (C7*B2)+(D7*B3)+B4*E7 54% 10.33% (C8*B2)+(D8*B3)+B4*E8 14% 5.00% B2*C9+B3*D9+B4*E9 10.01333333%|B13*C13+B14*C14+B15*C15 10.01% Round off to two decimals 20 21 22 23 Sheet1 + READY + 100% x W 8:25 AM 31-Jul-20