There is a 10 percent probability the economy will boom a


There is a 10 percent probability the economy will boom, a 65 percent probability it will be normal, and a 25 percent probability it will be recessionary. For these economic states, Stock A has deviations from its expected returns of .07, .02, and -.12, respectively. Stock B has deviations from its expected returns of .05, .01, and -.04, for the three economic states, respectively. What is the covariance of the two stocks?

.02049

.02143

.00168

.00116

.01054

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Financial Management: There is a 10 percent probability the economy will boom a
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