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What are the benefits of merging and diversifying one's assets in order to lower one's risk?
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- Benefits of diversification. What is the expected return of investing in asset M alone?Combining two or more assets in an investment portfolio will typically lead to diversification benefits.(i) What is the benefit of diversification?(ii) What is the general condition under which diversification will have benefits? Briefly explain why.How does the efficient frontier change if we add the risk free asset into theportfolio of risky assets? Explain both the cases when borrowing at the riskfree is allowed and when it is not. Support your explanations with a graph.