Question

Question Status 10 12 PM The return on the Rush Corporation in the state of recession is estimated to be-21% and the return on Rush n the state of boom is estimated to be 31% The return on the Oberman Corporation in the state of recession is estimated to be 44% and the return on Oberman in the state of Given this information, what is the boom is estimated to be-19% en Rush and Oberman if there is a 0.40 probability that the economy will be in the state of Notes that the economy will be in the state of recession r in decimal form and not as a percentage CHECK ANSWER tion

Answer 1

- Rush Corporation

State of Economy	Probability (P)	Return	Probability*Return	Deviation form expected return (D1)	PD1^2
Recession	0.600	-0.210	-0.126	-0.208	0.026
Boom	0.400	0.310	0.124	0.312	0.039

Expected return = $\sum$ Probability*Return

= -.126+.124

= -.002

*Deviation form expected return = Rate of return -  expected return​

- Oberman Corporation

State of Economy	Probability (P)	Return	Probability*Return	Deviation form expected return (D2)	PD2^2
Recession	0.600	0.440	0.264	0.252	0.038
Boom	0.400	-0.190	-0.076	-0.378	0.057

Expected return = $\sum$ Probability*Return

= .264-.076

= .188

*Deviation form expected return = Rate of return -  expected return​

Probability (P)	Deviation (D1)	Deviation (D2)	PD1D2
0.6000	-0.2080	0.2520	-0.031450
0.4000	0.3120	-0.3780	-0.047174

Covariance = $\sum$ PD1D2

= -.031450-.047174

= -0.078624