The Two-Factor Model for Security a Is -4% + 6%(IP)

question 29

Multiple Choice

The two-factor model for Security A is -4% + 6%(IP) + 2%(M) and for Security B is 1.5% + 3%(IP) + 2.5%(M) . An analyst forecasts IP at 1.5% and M at 3% with respective variances at 3% and 2%. The Covariance of Securities A and B is 80.8. Covariance (IP, M) is

• A) .1.
• B) 1.4.
• C) .8.
• D) .6.

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