Given the returns for two stocks with the following information, calculate the covariance of the returns for the two stocks. Assume the expected return is 10.8 percent for Stock 1 and 9.7 percent for Stock 2.
Prob
Stock 1
Stock 2
0)4
0)09
0)11
0)5
0)11
0)08
0)1
0)17
0)13

Question

Quizplus · Accepted Answer

The covariance of the returns for the two stocks is 0.000094. This is calculated by multiplying the covariance of the returns for the two stocks by the probability of each return. The covariance of the returns for the two stocks is 0.000094, and the probability of each return is 0.4, 0.09, 0.11, 0.5, 0.11, 0.08, 0.1, 0.17, and 0.13.

Given the Returns for Two Stocks with the Following Information