Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International financial management

Authors: Jeff Madura

9th Edition

978-0324593495, 324568207, 324568193, 032459349X, 9780324568202, 9780324568196, 978-0324593471

More Books

Students also viewed these Finance questions