Consider the following table, which gives historical returns on two stocks and the market Year Stock A return ( ) Stock B return ( ) 2007 0 15 0 12 2008 0 22 0 05 2009 0 28 0 06 A Assume that these returns can be used to estimate expectation, variance, and covariance of future returns 1 What are the expected rates of return on each stock B What is the covariance of stocks A and B

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Question: Consider the following table, which gives historical returns on two stocks and the market: Year Stock A return (%) Stock B return (%) 2007 0.15

Consider the following table, which gives historical returns on two stocks and the market:

Year	Stock A return (%)	Stock B return (%)
2007	0.15	0.12
2008	0.22	0.05
2009	0.28	-0.06

A. Assume that these returns can be used to estimate expectation, variance, and covariance of future returns.1. What are the expected rates of return on each stock?

B. What is the covariance of stocks A and B?

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