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Math Help - Need help quick please on covariance

  1. #1
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    Unhappy Need help quick please on covariance

    If a guy wants to invest his money in A with a return of 12% and B with a return of 10% and u know the expected return of both is 11% how can you work out the covariance with no additional information? I have to present the answer tommorow and dont know how to do it! plllease can anyone help!!
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  2. #2
    Senior Member MacstersUndead's Avatar
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    could you define covariance? I know I could look it up, but maybe if you explain what it is, it'll help with your understanding.

    However, you can show that with a system of linear equations:

    x (amount invested in A)
    y (amount invested in B)

    .12x + .10y = .11 (x+y)
    .01x - .01y = 0
    x - y = 0
    x = y

    so the man invested equal amounts in A and B.
    Ask if you need more help, although I haven't yet taken a university stats.
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  3. #3
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    well all iv got from my notes is the covariance of a and b is equal to the SUM OF pr(Ra-ERa)(Rb-ERb) Pr is the probability R is return and ER is expected return. I dont really know what the covariance is myselfi just need the covariance to work out another question.
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  4. #4
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    o and i forgot to add That he is investing 50% in x and 50% in y
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