1. The universe of available securities includes two risky stock funds, A and B, and T-bills. The data are as follows:

Expected Return Standard Deviation

A 10% 15%

B 15% 25%

T-bills 4% 0

The correlation coefficient between A and B =0.4.

1. What is the covariance between funds A and B?

Covariance (X, Y) = t=1NProbx,y((x-EX)(y-Ey)

Covariance (X, Y) = _{xy xy}