Calculate the covariance between their returns

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Reference no: EM132475014

Point 1: You believe that there is a 40 percent chance that stock A will decline by 10 percent and a 60 percent chance that it will rise by 20 percent.

Point 2: Correspondingly, there is a 30 percent chance that stock B will decline by 10 percent and a 70 percent chance that it will rise by 20 percent.

Point 3: The correlation coefficient between the two stocks is 0.70.

Question 1: Calculate the expected return, the variance, and the standard deviation for each stock. Then calculate the covariance between their returns.

Reference no: EM132475014

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