Greta has risk aversion of $A=5$ when applied to return on wealth over a one$-$

year horizon. She is pondering two portfolios, the S&P $500$ and a hedge fund, as

well as a number of one$-$year strategies. $($All rates are annual and continuously

compounded.$)$ The S&P $500$ risk premium is estimated at $8\%$ per year, with a

standard deviation of $14\%.$ The hedge fund risk premium is estimated at $10\%$ with

a standard deviation of $29\%.$ The returns on both of these portfolios in any

particular year are uncorrelated with its own returns in other years. They are also

uncorrelated with the returns of the other portfolio in other years. The hedge

fund claims the correlation coefficient between the annual return on the S&P

$500$ and the hedge fund return in the same year is zero, but Greta is not fully

convinced by this claim.

If the correlation coefficient between annual portfolio returns is actually $0\mathrm{.}2,$ what

is the covariance between the returns? $($Round your answer to $3$ decimal

places.$)$

Annual covariance