Over the next year, there is a 84% chance of the market being in state 1, otherwise it is in state 2. Shares in Cornelius.com will earn a return of 5.5% in state 1, and 3.4% in state 2. Shares in GiantBadger will earn a return of 7.2% in state 1, and 1.30% in state 2. What is the covariance of the two security returns?

Over the next year, there is a 84% chance of the market being in state 1, otherwise it is in state 2. Shares in Cornelius.com will earn a return of 5.5% in state 1, and 3.4% in state 2. Shares in GiantBadger will earn a return of 7.2% in state 1, and 1.30% in state 2. What is the covariance of the two security returns?

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Description: Over the next year, there is a 84% chance of the market being in state 1, otherwise it is in state 2. Shares in Cornelius.com will earn a return of 5.5% in state 1, and 3.4% in state 2. Shares in GiantBadger will earn a return of 7.2% in state 1, and

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 17P

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Over the next year, there is a 90% chance of the market being in state 1, otherwise it is in state 2. Shares in Cornelius.com will earn a return of 5.2% in state 1, and 7.5% in state 2. Shares in GiantBadger will earn a return of 6.5% in state 1, and 3.80% in state 2. You have invested 75% of your money in Cornelius.com, with the remainder in GiantBadger. What is your expected return over the next year
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