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Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018

18th Edition

ISBN:9780079039897

Author:Carter

Publisher:Carter

Chapter4: Equations Of Linear Functions

Section4.5: Correlation And Causation

Problem 15PPS

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Question

Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A
and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 7.55 percent and 10.80 percent.
respectively. (Round answer to 4 decimal places, e.g. 0.0768.)
Good
OK
Poor
Covariance
Probability
0.21
0.60
0.19
Return
on Stock
A
0.30
0.10
-0.25
Return
on Stock
B
0.50
0.10
-0.30

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