Consider the following table, which gives historical returns on two stocks and the market: Stock A...

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Consider the following table, which gives historical returns on two stocks and the market: Stock A return (%) Stock B return (%) 0.15 0.12 0.22 0.05 0.28 -0.06 Year 2007 2008 2009 Assume that these returns can be used to estimate expectation, variance and covariance of future returns. 1. What are the expected rates of return on each stock? 2. What are the covariance of stocks A and B? Consider the following table, which gives historical returns on two stocks and the market: Stock A return (%) Stock B return (%) 0.15 0.12 0.22 0.05 0.28 -0.06 Year 2007 2008 2009 Assume that these returns can be used to estimate expectation, variance and covariance of future returns. 1. What are the expected rates of return on each stock? 2. What are the covariance of stocks A and B?

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1 To calculate the expected rates of return on each stock we need to take the average of the histori... View the full answer