Covariance Between the Return Assignment | Homework For You
May 28th, 2020
Stocks A and B have the following returns in each of the states given below.
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Good |
Bad |
Ugly |
|
Stock A return |
25% |
10% |
-25% |
Stock B return |
1% |
-5% |
35% |
The probability of the good state is 0.5, the probability of the bad state is 0.3 and the probability of the ugly state is 0.2. What is the covariance between the returns of A and B? (Hint: The expected return of A is 10.5% and the expected return of B is 6%) What is the covariance between the return of A and the return of a risk-free asset which has an expected return of 5%? Get Finance homework help today