Expected return-variance and risk

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Expected Return, Variance and Risk

You believe that there is a 50% chance that the share price of Company L will decrease by 12% and a 50% chance that it will increase by 24%. Further, there is a 40% chance that the share price of Company M will decrease by 12% and a 60% chance that it will increase by 24%. The correlation coefficient of the returns on shares in the two companies is 0.75. Calculate;

A) The expected return, variance and standard deviation for each company's shares

B) The covariance between their returns.

Reference no: EM132364450

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