2. Outline. Expected return, variance and covarianceReturn and risk of a portfolioEfficient setA portfolio with a risk-free assetThe optimal portfolioThe betaCapital asset pricing model. 3. Expected return, variance and covariance.. Consider the returns on the stocks of two companies, stock A and stock B. Returns on stock A possibly take four values depending on the state of economy. Similarly, returns on stock B possibly takes four values. The possible values and probability distributions9462
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