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

Question

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 31%. The return on the Oberman Corporation in he state o recession is estimated to be 41% and the return on Oberman in th state of boom ses mated to 19%, GI en this imation, hats eco ariance between Rush and Oberman if there is a 0.50 probability that the economy will be in the state of boom and a 0.50 probability that the economy will be in the state of recession. Place your answer in decimal form and not as a percentage.

Explanation / Answer

Return of Rush corporation in recession= -20%(R1r)
Return of Rush corporation in boom = 31%(R1b)
Return of Oberman corporation in recession= -19%(R1r)
Return of Oberman corporation in boom = 41%(R1b)

Probability of Boom = 0.5
Probability of Recession =0.5
Expected return of Rush corporation = Probability of Recession * R1r Probability of Boom * R1b =
0.5*31% +0.5*(-20%) = 5.5% E(R1)
Expected Return of Oberman corporation = Probability of Recession * R2r Probability of Boom * R2b =
0.5*41% +0.5*(-19%) =11% E(R2)
Covariance = Probability of boom *( Return of Rush Corporation in boom-E(R1)) (( Return of Oberman Corporation in boom-E(R2)) +  Probability of recession *( Return of Rush Corporation in recession-E(R1)) (( Return of Oberman Corporation in recession-E(R2)) = 0.5 * ( 31%-5.5%) * ( 41% - 11%) + 0.5 * (-20% -5.5%) * (-19% -11%) = 0.06942


Best of Luck. God Bless

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.