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