Question
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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