Portfolios with more than one asset: Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 11.75 percent and 18 percent, respectively.

Transcribed Image Text:

Return on Return on Probability Stock A Stock B Good 0.35 0.30 0.50 OK 0.50 0.10 0.10 Poor 0.15 -0.25 -0.30