The following data have been developed for the Donovan Company, the manufacturer of an advanced line of adhesives:
Sate Probability Market Return Return for the firm
1 .1 -.15 -.30
2 .3 .05 .00
3 .4 .15 .20
4 .2 .20 .50
The risk free rate I 6%. Calculate the following:
a) The expected market return.
b) The variance of the market return.
c) The expected return for the Donovan Company.
d) The covariance of the return for the Donovan Company with the market return.
e) Write the equation of the security market line.
f) What is the required return for the Donovan Company? How does this compare with its expected return?