Question
The current price is $100 for Fast-Caps (FC) and $20 for Slo-Vegs (SV). In a year when the market is up, the price of FC
The current price is $100 for Fast-Caps (FC) and $20 for Slo-Vegs (SV). In a year when the market is up, the price of FC will increase to $120, but the price of SV will decrease to $18. When the market is down, the price of FC will decline to $90, but the price of SV will increase to $30. The probability of an up market in a year is 60% while the probability of a down market is 40%. FC expects to pay a dividend of $2 in either market condition while SV will not pay a dividend. The T-bill rate is 3%. What is the covariance between FC and SV?
A. -0.0432
B. 0.0179
C. -0.0072
D. 0.0638
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