Economic state Probability of state Return of Sanlib Ltd Return of Mutual and Co Ltd Average return 0.25 30% 22% Variance 0.35 18% 20% Standard deviation 0.30 12 % 14% Recession 0.10 -14% 0% The second client, Mr Mmbi, already holds a well-diversified portfolio of shares and would like to add the shares of two JSE-listed construction companies, Willard (W) Ltd and Vhembe (V) Ltd. Again, the SBIH equity research department provided the following historic information about the average return, variance of returns and the standard deviation of returns of the market and the two companies shares over the last five years, from 2013 to 2017: The Market Willard Ltd Vhembe Ltd Average retrun 14.8% 10.4% 22% Variance 22.96% 15.04% 33.2% Standard deviation 5% 3.88% 5.76% The covariance of the two companies in the portfolio is as follows: COVWM = 19.08, COVVM = 28.2 and COVWV 2.4. In 2018, Mr Mmbi expects the return on the market to be 18%. The risk-free rate is expected to be 8.15. The expected returns on the shares of Willard Ltd and Vhembe Ltd in 2018 are 10.4% and 22%, respectively. 3.1. Determine the expected return and standard deviation of returns for Sanlib Ltd and Mutual and Co Ltd. Advise as to the better investment option between these two.