Question: Consider two stocks Alpha and Kappa below. Assume that both stocks have the same return volatility and the following possible returns for next year:

Consider two stocks Alpha and Kappa below. Assume that both stocks have the same return volatility and the following possible

Consider two stocks Alpha and Kappa below. Assume that both stocks have

Consider two stocks Alpha and Kappa below. Assume that both stocks have the same return volatility and the following possible returns for next year: Returns State Boom Normal 0.50 Recession 0.25 Pr Alpha Kappa 0.25 15% 8% 8% 2% -2% 12% 6. Compute the covariance between Alpha and Kappa: 7. Assume correctly or incorrectly that Alpha and Kappa have volatility of 6% and 4% respectively, and correlation -0.5. Compute volatility of portfolio Rp that invests 90% in Alpha and 10% in Kappa:

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