1. Calculate the variance of the return of ABC company.

2. Calculate the covariance of the expected return of ABC company and XYZ company.

The Carindale Carpet Company is looking to make some investment in some shares and other investments to diversify their portfolio. They are interested in the following two stocks and have been able to determine their expected returns based on the expected different states of the economy. State of Economy Probability ABC Company XYZ Company Expected Return Expected Return Very Good .3 20% 10% Good .2 12% 6% Average 1.4 8% 5% Poor .1 -12% 10% Expected Return .1040 7.2% Variance .00053600