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. Link's expected rate of returns for the common stocks of company A and B during the next year are: Company A Company B
. Link's expected rate of returns for the common stocks of company A and B during the next year are: Company A Company B Possible Rate of Return (%) 15.9 -10.0 -5.6 23.7 -15.6 19.6 Probability (%) 20 15 10 15 24 16 Possible Rate of Return (%) 4.5 30.0 -5.7 -15.3 -6.5 -7.8 Probability (%) 25 36 4 10 13 12 a. Compute the expected return, the variance of this return, and its standard deviation for each company. b. Based on the computation in part a, discuss whether company A or company B is preferable. c. Compute the covariance and correlation coefficient between these two companies. d. If Link is interested to form a portfolio consists of these two companies, please advise him whether these two companies are a good diversified portfolio.
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