Considering the following stock return information for Goya Foods and Bloomingdales, State of Economy Return on Goya Foods Return on Bloomingdales Bear .108 −.051 Normal .109 .154 Bull .079 .239 If each state of the economy is equally likely to occur, the covariance between the two stocks is: a. -0.014820 b. 0.705700 c. -0.013900 d. 0.000190 e. -0.001195 NOTE: Indicate a negative answer with a minus sign.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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Considering the following stock return information for Goya Foods and Bloomingdales, |
| State of Economy |
Return on Goya Foods |
Return on Bloomingdales |
| Bear | .108 | −.051 |
| Normal | .109 | .154 |
| Bull | .079 | .239 |
| If each state of the economy is equally likely to occur, the covariance between the two stocks is: |
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NOTE: Indicate a negative answer with a minus sign. |
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