•What is the covariance of returns between stocks A and B?   year    Year              Return A               Return B  2017              60%                       35% 2016              20%                        15% 2015              10%                        -20%   answer is :  σA,B =  0.0433      E(RA) = 30%    E(RB) = 10%. , please dont use excel

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.