The returns of two assets under four possible states of nature are given below:
|
State of nature |
Probability |
Return on asset 1 |
Return on asset 2 |
|
1 2 3 4 |
0.10 0.30 0.50 0.10 |
5% 10% 15% 20% |
0% 8% 18% 26% |
a. What is the standard deviation of the return on asset 1 and asset 2?
b.What is the covariance between the returns on assets 1 and 2?
c. What is the coefficient of correlation between the returns on assets 1 and 2?
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