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Suppose there are two stocks and two possible states. The first state happens with 80% probability and second state happens with 20% probability. In the
Suppose there are two stocks and two possible states. The first state happens with 80% probability and second state happens with 20% probability. In the first state, stock A has 0% return and stock B has 2% return. In outcome 2, stock A has 40% return and stock B has 18% return. What is the covariance of their returns? (Please convert all percentages to numbers)
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