1. Compute expected return and standard deviation of annual return for each alternative separately. 2. Compute covariance of annual returns between the Alaska and Houston offices, and between the California and Houston offices. 3. Compute the expected return and standard deviation for each of the two combinations. 4. Prepare pro forma statements for each new office combined with the Houston office, using each of the four possible conditions. 5. What would you recommend to Cotner? Why? 442 Part Four Risk and Investment Choice buy an interest in calize that she CASE PROBLEM Houston Disbursement y Cotner went to work for a title com- that he could eventually buy an inter y after graduating from college. The Houston Disbursement. department she worked in provided dis- Cotner soon came to realize that bursement advice to banks with regard to had gained little from diversification oiligas- related loans. When a bank drop in oil prices caused the entire HoueI granted a construction loan, the money ton economy to turn down, even when the was paid out according to progress made. national economy was strong. Based on Someone had to monitor the project and her experiences, Cotner prepared an eerd authorize disbursement of cash under the mate of revenue and profits for Houston loan agreement. While most banks moni- Disbursement for both a strong and