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

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

Portfolios with more than one asset: Given the returns and probabilities for the three possible states listed here, 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.

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