Stock a Is Expected to Return 14 Percent in a Normal

question 38

Multiple Choice

Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession.Stock B is expected to return 11 percent in a normal economy and 5 percent in a recession.The probability of the economy being normal is 75 percent and being recessionary is 25 percent.What is the covariance of these two securities?

• A).007006
• B).006563
• C).005180
• D).007309
• E).006274

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Definitions:

Conclusion

The final part of something, especially an argument or a piece of writing, summarizing the main points or deducing some consequence.

Valid

In logic, pertaining to an argument in which, assuming the premises are true, the conclusion necessarily follows.

Argument

A set of arguments or justifications presented to convince others of the legitimacy or correctness of a particular idea or claim.

Valid

A term indicating that an argument or statement logically follows from the given premises.