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There are three possible states of the world: Bust, Normal, and Boom. There is a 20%probability of a Bust, in which case Stock A has
There are three possible states of the world: Bust, Normal, and Boom. There is a 20%probability of a Bust, in which case Stock A has a return of 5%and Stock Bhas a return of 6%. There is a 50probability of Normal times, in which Stock A has a return of 12%and Stock Bhas a return of 15%. And there is a 30%probability of a Boom, in which Stock A has a return of 20% and Stock B has a return of 25%. Find the covariance between Stock A and Stock B.
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