Suppose a world has two risky assets: StkC and StkD. The following table shows the holding period returns in each scenario. Suppose the T-bill rate is 3%. Scenario Probability Return for StkC Return for StkD Severe recession 0.03 -40% -12% Mild Recession 0.02 -10% 10% Normal 0.9 10% 6% Mild growth 0.02 20% 8% Boom 0.03 60% -20% Which answer is the closest value to the correlation between StkC and StkD?
Suppose a world has two risky assets: StkC and StkD. The following table shows the holding period returns in each scenario. Suppose the T-bill rate is 3%. Scenario Probability Return for StkC Return for StkD Severe recession 0.03 -40% -12% Mild Recession 0.02 -10% 10% Normal 0.9 10% 6% Mild growth 0.02 20% 8% Boom 0.03 60% -20% Which answer is the closest value to the correlation between StkC and StkD?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose a world has two risky assets: StkC and StkD. The following table shows the holding period returns in each scenario. Suppose the T-bill rate is 3%.
|
Scenario |
Probability |
Return for StkC |
Return for StkD |
|
Severe recession |
0.03 |
-40% |
-12% |
|
Mild Recession |
0.02 |
-10% |
10% |
|
Normal |
0.9 |
10% |
6% |
|
Mild growth |
0.02 |
20% |
8% |
|
Boom |
0.03 |
60% |
-20% |
Which answer is the closest value to the correlation between StkC and StkD?
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