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You are considering investing in two stocks. There are two possible states for the economy over the next year: Good and Bad . Each state
You are considering investing in two stocks. There are two possible states for the economy
over the next year: Good and Bad Each state is equally likely that is probability for
each state is Their return in each possible state is estimated as follows:
State Return to stock A Return to stock B
Good
Bad
a What are the expected return and volatility of each stock return?
b What are the covariance and correlation between the two stock returns?
c Construct the minimum varianc
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