Question

The return on the Rush Corporation in the state of recession is estimated to be -22%...

The return on the Rush Corporation in the state of recession is estimated to be -22% and the return on Rush in the state of boom is estimated to be 33%. The return on the Oberman Corporation in the state of recession is estimated to be 40% and the return on Oberman in the state of boom is estimated to be -15%. Given this information, what is the covariance between Rush and Oberman if there is a 0.40 probability that the economy will be in the state of boom and a 0.60 probability that the economy will be in the state of recession.

Homework Answers

Answer #1

Expected Return of Rush corporation =0.40*33%+0.6*-22%=0%
Expected Return of Oberman corporation = 0.40*-15%+0.6*40%=18%

Covariance of Portfolio = Probability of Boom *(Return of Rush in boom -Expected Return)*(Return of Oberman in Boom)+ Probability of Recession *(Return of Rush in Recession -Expected Return)*(Return of Oberman in Recession) =0.4*(33%-0)*(-25%-18%)+0.6*(-22%-0)*(40%-18%) = -0.0858

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The return on the Rush Corporation in the state of recession is estimated to be -22%...
The return on the Rush Corporation in the state of recession is estimated to be -22% and the return on Rush in the state of boom is estimated to be 30%. The return on the Oberman Corporation in the state of recession is estimated to be 43% and the return on Oberman in the state of boom is estimated to be -17%. Given this information, what is the covariance between Rush and Oberman if there is a 0.70 probability that...
The return on the Rush Corporation in the state of recession is estimated to be -25%...
The return on the Rush Corporation in the state of recession is estimated to be -25% and the return on Rush in the state of boom is estimated to be 32%. The return on the Oberman Corporation in the state of recession is estimated to be 42% and the return on Oberman in the state of boom is estimated to be -20%. Given this information, what is the covariance between Rush and Oberman if there is a 0.50 probability that...
State of Economy Probability of State of the Economy Security Return if State Occurs Recession .30...
State of Economy Probability of State of the Economy Security Return if State Occurs Recession .30 -8% Normal .40 13% Boom .30 23% Find the standard deviation  of the portfolio
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State...
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 0.20 0.02 -0.17 Normal 0.60 0.08 0.12 Boom 0.20 0.16 0.35 Required: Given that the expected return for Stock A is 8.400%, calculate the standard deviation for Stock A. (Do not round your intermediate calculations.)
Q1) Calculate the expected return on the stock of Dull Saw Corporation. The beta is estimated...
Q1) Calculate the expected return on the stock of Dull Saw Corporation. The beta is estimated to be 0.7, the market risk premium is 9.6% and the risk-free rate is 4%. Q2) What is the profitability index for an investment with the following cash flows given a 10% required return?                         Year                Cash Flow                            0                   -$22,500                            1                   $ 8,400                            2                   $ 9,700                            3                   $ 9,900       Q3) What is the (a)...
Consider the following information:    Rate of Return if State Occurs   State of Economy Probability of...
Consider the following information:    Rate of Return if State Occurs   State of Economy Probability of State of Economy Stock A Stock B   Recession 0.10 0.06 -0.18   Normal 0.60 0.08 0.16   Boom 0.30 0.16 0.35    Required:    Given that the expected return for Stock A is 10.200%, calculate the standard deviation for Stock A. (Do not round your intermediate calculations.)
An analyst has estimated how a particular stock's return will vary depending on what will happen...
An analyst has estimated how a particular stock's return will vary depending on what will happen to the economy: State of Probability of Stock's Expected Return the Economy State Occurring if this State Occurs Recession 0.10 -60% Below Average 0.20 -10 Average 0.40 15 Above Average 0.20 40 Boom 0.10 90 What is the coefficient of variation on the company's stock? (Use the population standard deviation to calculate the coefficient of variation.) a. 2.121 b. 2.201 c. 2.472 d. 3.334...
What is the expected return on this stock given the following information? State of the Economy...
What is the expected return on this stock given the following information? State of the Economy Probability E(R) Boom 0.4 15 % Recession 0.6 -20 % Multiple Choice -8.07 percent -6.00 percent -5.20 percent -5.70 percent -7.69 percent A portfolio consists of the following securities. What is the portfolio weight of stock A? Stock #Shares PPS A 200 $ 48 B 100 $ 33 C 250 $ 21 Multiple Choice 0.389 0.451 0.336 0.529 0.445 What is the variance of...
Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return...
Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.05 –40 % –9 % Mild recession 0.25 –14 % 15 % Normal growth 0.40 17 % 8 % Boom 0.30 33 % –5 % b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Covariance %-Squared   
Security Returns if State Occurs State of Economy Probability of State of Economy Roll Ross Bust...
Security Returns if State Occurs State of Economy Probability of State of Economy Roll Ross Bust 0.60 –14 % 15 % Boom 0.40 32 5 Calculate the standard deviations for Roll and Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.) State of Economy Probability of State of Economy Return Deviation from Expected Return Squared Return Deviation Product Roll Bust...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT