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You are trying to form portfolios based on the following information: State Probability Return A Return B Poor 20.0% -4.0% -4.0% Normal 40.0% 3.0% 8.0%
You are trying to form portfolios based on the following information:
State | Probability | Return A | Return B |
Poor | 20.0% | -4.0% | -4.0% |
Normal | 40.0% | 3.0% | 8.0% |
Good | 30.0% | 10.0% | 8.0% |
Very Good | 10.0% | 30.0% | 10.0% |
You also know the risk-free rate is 5%.
Calculate the covariance between A and B, and use four decimal places.
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