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The Castro Cement Company is looking to make some investment in some shares and other investments to diversify their portfolio. They are interested in the

The Castro Cement 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 Expected Return

DEF Expected Return

Very Good

0.3

25%

16%

Good

0.4

17%

8%

Average

0.2

9%

5%

Poor

0.1

-9%

0%

Expected Return

15.2%

9%

A) Calculate the standard deviation of the returns of ABC Company. (4 Marks)

B) Calculate the covariance of the expected returns of ABC Company and DEF Company. (4 Marks)

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