1) (20 pts) You are given the following pattern of returns:

Outcome Probability Expected Returns on Market. Expected Returns on DEF Inc.

Strange. 25%. 5%. 18%

Normal 75% 10% 1%

a) What are the expected returns of the market and DEF Inc.?

b) What are the standard deviations of the market and DEF Inc.?

c) What is the covariance of DEF Inc. with the market? What Beta does that Covariance imply?