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The return on the Rush Corporation in the state of recession is estimated to be-20% 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 42% and the return on Oberman in the state of boom is estimated to be-18%. 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 Place your answer in decimal form and not as a percentage.

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Answer #1

The answer is -0.0763

Rush State of Econ omy Probability of Security Return State of Economy If State Occurs Covariance Recession Boom 20.00%) 33.00% | -8.00%-31.800% 19.80%) 21.200% 0.40 0.101124 0.044944 0.04 0.03 0.04579 0.03053 0.60 Expected Return | 11.80% Variance 6.74% Covariance Std 25.96% Oberman State of Economy Probability of Security Return State of Economy If State Occurs 0.40 0.1296 42%) 18%) 16.80% 36.000% -10.809 -24.000% 0.05 0.03 Recession Boom 0.60 0.0576 Expected Return 6.00% Variance 8.64% 29.39% Std 7Rush 8 State of Eco Probability of Security Return State of Economy If State Occurs 0.4 0.6 Covariance 0.2 0.33 -C10-SD$13 E1042 B10 F10 -C11-SD$13 E112 B11 F11 B10 (C10-D13) (C18-D21 B11 (C11-D13) (C19-D21 10 Recession 11 Boonm 12 13 B18 C10 B19 C11 Expected Return ESUM D10:D12 Variance ESUM (G10:G12 Std Covariance ESUM(U9:112 SQRT(G13) 15 Oberman 16 State of Eco 17 18 Recession 19 Boom 20 21 Probability of Securi State of Economy If State Occurs 0.4 0.6 ty Return 0.42 0.18 B18 C18 B19 C19 -C18-SD$21 E18A2B18 F18 -C19-SD$21E192 B19*F19 Expected ReturnSUM(D18:D20) Variance SUM(G18:G20) Std SQRT(G2:1

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