2 Find the covariance of the following two assets: Economic state Probability Stock 1 Stock 2 Good 0.5 10% Bad 0.5 0% 5% -5% Covariance between stock 1 and stock 2 is 0.25% or 0.0025.
Added by Claudia L.
Step 1
The expected return for stock 1 is: (0.5 * 10%) + (0.5 * 0%) = 5% The expected return for stock 2 is: (0.5 * 5%) + (0.5 * (-5%)) = 0% Show more…
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