How do you diversify the risk of your risky


Suppose you invest $100 in a risky asset which yields $170 at state 1 its probability is 20%, $90 at state 2 its probability is 50% and $70 at state 3 its probability is 30%. You can buy three special assets A1, A2 and A3. A1 yields $50 at state 1 and nothing at the other states, its price is $10, A2 yields $20 at state 2 and nothing at the other states, its price is $10, and A3 yields $100 at state 3 and nothing at the other states, its price is $30. How do you diversify the risk of your risky asset?

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Financial Management: How do you diversify the risk of your risky
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