Question
Consider the following probability distributions for stocks A and B: State Probability Return on A Return on B 1 .3 7% -9% 2 .5 11%
Consider the following probability distributions for stocks A and B:
| State | Probability | Return on A | Return on B |
| 1 | .3 | 7% | -9% |
| 2 | .5 | 11% | 14% |
| 3 | .2 | -16% | 26% |
A. What is the correlation between stocks A and B? Please give your answer in decimal form rounded to the third decimal place.
B. What is the standard deviation of returns for stock A? Please give your answer in percent rounded to the nearest basis point.
C. What is the standard deviation of stock B? Please give your answer in percent rounded to the nearest basis point.
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Fundamentals of Corporate Finance
Authors: Berk, DeMarzo, Harford
2nd edition
132148234, 978-0132148238
