Question: QUESTION 18 Consider the following table, which gives historical returns on two stocks and the market: Year Stock A return (%) Stock B return (%)

QUESTION 18

  1. 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

    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?

    2. What are the covariance of stocks A and B?

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