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problem: Given the returns and probabilities for the 3 possible states listed here, find out the covariance between the returns if Stock A & Stock B. for convenience, suppose that the expected returns of stock A & Stock B are 11.75% and 18% , respectively.

 

Probability  

Return(A)     

Return(B)

Good

0.35

0.30

0.50

OK

0.50

0.10

0.10

Poor

0.15    

-0.25

-0.30

Basic Finance, Finance

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