For the returns of two stocks, P(X = 10%, Y = 5%) = 0.4, PIX = 15%, Y = 8%) = 0.5, and PX - 28%, Y = 12%) - 0.1. Given that E(X) is 22% and E(Y) is 10%, the covariance of the returns of X and Y is O 0.0043 O 0.0028 O 0.0032 O 0.0035

C) 0.0032

Explanation:

covariance = probability (return of X - Expected return of X) (return of Y - expected return of Y)

= 0.4 (0.10 - 0.22) (0.05 - 0.10) + 0.5 ( 0.15 - 0.22) (0.08 - 0.10) + 0.1 (0.28 - 0.22) (0.12 - 0.10)

= 0.4 (-0.12) (-0.05) + 0.5 (-0.07) (-0.02) + 0.1 (0.06) (0.02)

= 0.4 (0.0060) + 0.5 (0.0014) + 0.1 (0.0012)

= 0.0024 + 0.0007 + 0.0001

= 0.0032