The returns on assets C and D are strongly correlated with a correlation coefficient of 0.80. The variance of returns on C is 0.0009, and the variance of returns on D is 0.0036. What is the covariance of returns on C and D? Give typing answer with explanation and conclusion

The returns on assets C and D are strongly correlated with a correlation coefficient of 0.80. The variance of returns on C is 0.0009, and the variance of returns on D is 0.0036. What is the covariance of returns on C and D? Give typing answer with explanation and conclusion

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section6.7: The Relationship Between Risk And Return In The Capital Asset Pricing Model

Problem 2ST

See similar textbooks

Related questions

Q: Discuss the contribution of holbrook working (1895 - 1985) to capital market efficiency

A: Holbrook Working (1895 - 1985) was an American economist who made significant contributions to the…

Q: a) Calculate the after-tax cost of borrowing from the boat dealership. b) Calculate the after-tax…

A: Interest rates are the rates at which borrowers can obtain funds from lenders. Different types of…

Q: Write the constraint below as a linear inequality. A canoe requires 6 hours of fabrication and a…

A: Here, X is the number of canoes Y is he number of rowboat. Total number of hours should not exceed…

Q: can you solve the apr and effective rate without excel ?

A: Solution:- When an equal amount is paid each period, it is known as annuity. We know, present value…

Q: Explain the Internal Rate of Return (IRR). Write down in your language what you understood. Don’t…

A: The Internal Rate of Return (IRR) is a financial metric used to measure the profitability of a…

Q: Kathy Hansen has a revolving credit account. The finance charge is calculated on the previous…

A: A credit card is a payment card that allows a cardholder to borrow money from a financial…

Q: If Walmart (WMT) recently earned a profit of $5.10 per share and has a P/E ratio of 16.25. The…

A: In the given case, we have given the current earning per share and the growth rate . So, using the…

Q: Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis…

A: The WACC refers to the average return that the company provides to all its stakeholders. It takes…

Q: Under the assumption that KMS's market share will increase by 0.24% per year, you determine that the…

A: A loan is a financial arrangement in which one or more people, companies, or other entities lend…

Q: The table below gives a detailed forecast of the size of the market by production volume. Assume…

A: Production planning is the practice of determining the resources needed to produce future retail…

Q: Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has…

A: Payback Period: It represents the period in which the initial investment of a project is recovered.…

Q: Analysts at Sky West Airlines did a 3 year projection of expenses. They calculated that the company…

A: To solve this question we will apply the concept of time value of money. The future cash…

Q: A$110,000 mortgage is amortized over 25 years. If interest on the mortgage is 6.5 percent compounded…

A: Firstly we will convert compounding semi-annually to monthly compounding because payment size is…

Q: EAR What is the effective annual rate (EAR) of a mortgage that is advertised at 12% (APR) over the…

A: To calculate the effective annual rate we will use the below formula Effective annual rate =…

Q: An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset…

A: Original cost of asset = $5,550,000 Sale price of asset = $1,775,000 Tax rate = 25% Asset sale after…

Q: Amortization schedule. Chuck Ponzi has talked an elderly woman into loaning him $45,000 for a new…

A: The amortization schedule refers to the format representing the loan balance, the interest charged,…

Q: A risk-averse investor is considering two possible assets as the assets to be held in isolation. The…

Q: In the yellow cell immediately below write a formula that sets the cell to '1' if H186 equals 2 and…

A: An Excel function is a built-in formula that performs a specific task in Excel. Functions can be…

Q: Alison is currently 35 years old. On Alison’s 21st birthday she started saving $1500 per year. She…

A: The concept of time value of money will be used and applied here. To compute the future value we…

Q: Firm Z has invested $4 million in marketing campaign to assess the demand for a product Manish. This…

A: NPV is defined as the sum of the present values of all future cash inflows less the sum of the…

Q: You plan to purchase a $200,000 house using a 15-year mortgage obtained from your local credit…

A: Step 1 A mortgage term is a mortgage's whole life period. It's the period of time in years and…

Q: Problem 2. Consider the following straddle portfolio Vn = PBS (tn, Sn) + CBS (tn, Sn) with to = 0,t₁…

A: Straddle: It is a derivative strategy involving both calls and put options. Both options have the…

Q: Bronze It Tanning Salon expects annual sales of $1,175,000, annual fixed cash outlays are $586,000 a…

A: The difference between the current value of cash inflows and outflow of cash over a period of time…

Q: Ofri and Miles pay for their children to attend a private school instead of the nearby public school…

A: Private schools are educational institutions that are not funded or run by the government. Instead,…

Q: Question 3: Assume the following expected income on the loan of $200,000: Interest Income rate on…

A: The risk adjusted rate of return determines the return on the economic capital of a bank. Economic…

Q: You are the vice president of finance for a manufacturer of scuba diving gear. The company is…

A: A sinking fund is a reserve account that a company or government sets up to accumulate funds over…

Q: og Care Co. wants to finance a new animal shelter by making eight annual deposits into a fund…

A: The question is based on the concept of Financial Management. The cost of the new animal shelter…

Q: The yield to maturity of a $1,000 bond with a 6.6% coupon rate, semiannual coupons, and two years to…

A: The bond price is based on the discounted value of future cash flows coming from the bond. This…

Q: We have probably all heard about the Bernard Madoff Scandal. As investors we need to have adequate…

A: Financial literacy refers to the knowledge and skills needed to make informed and effective…

Q: (Present value of complex cash flows) How much do you have to deposit today so that beginning 11…

A: The PV of cash flows refers to their values after they have been discounted at an assumed rate. It…

Q: Kathy Hansen has a revolving credit account. The finance charge is calculated on the previous…

A: The revolving credit is a line of credit that remains open and does not have a fixed number of…

Q: ASSETS Cash & Marketable Securities Accounts Receivable Inventories Other Current Assets Total…

A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…

Q: Give typing answer with explanation and conclusion Which one of the following is a source of cash?…

A: Source of cash means inflow of cash

Q: In doing a five-year analysis of future dividends, the Dawson Corporation is considering the…

A: Dividend- It is the distribution of profits by a company to its shareholders. Stable dividend…

Q: You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its yearly high…

A: Rate of return on investment is the return expressed in percentage terms that is expected on the…

Q: Factors that influence business risk include except Group of answer choices A)liability…

A: Liability uncertainty is one of the factors that can cause business risk. It refers to the potential…

Q: Q5: A contract requires lease payments of $700 at the beginning of every month for 5 years. a. What…

A: Given the following: Monthly lease payment = $700 Lease period = 5 years Interest rate = 3.25%…

Q: should the opportunity cost be included in order to determine earnings before interest and tax? give…

A: Earning before interest and tax important Matrix as it help us to understand the total funding…

Q: 4. a) There is a municipal bond in which we are interested in investing. How much should it pay to…

A: Municipal bonds are debt securities issued by local, state, counties and other governmental bodies…

Q: a. Profitability Ratios Profit margin % Return on Assets % Return on Equity % b. Asset…

A: First let us list the formula used to compute the values. Net profit margin = Net income/…

Q: Which of the following is NOT an advantage of starting a partnership rather than a sole…

A: Choosing the right business structure is an essential decision for any entrepreneur. A sole…

Q: The constant growth dividend discount model (DDM) may be written as fo=D₁/(P₁ + 8) Po=D₁/(r₁-8) P =…

A: Dividend Discount model is used for calculation of current market price per share based on future…

Q: What are the sections of the cash flow statement? Why is it divided this way?

A: We look at the financial statements of a company to analyze its financial position and health.…

Q: Vandalay Industries is considering the purchase of a new machine for the production of latex.…

A: a) Machine A Annual depreciation=Purchase PriceUseful life=$2,140,0006=$356,666.67 The actual cost…

Q: A mortgage applicant who has a monthly gross income of $4,285.00 applies for a mortgage with monthly…

A: Monthly mortgage and other debt payments are based on monthly income and should be within the limits…

Q: Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever…

A: Initial Cash Flow: It represents the initial cash outflow required to initiate a new project or buy…

Q: Your firm has an ROE of 12.1%, a payout ratio of 27%, $594,200 of stockholders' equity, and…

A: First, we can calculate the sustainable growth rate using the given information: Sustainable Growth…

Q: Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon,…

A: Price of the bond is the PV of its future coupons and par value discounted at the YTM. A bond that…

Q: You put $10,000 in an account earning 5%. After 4 years, you make another deposit into the same…

A: Data given: Initial deposit=$10000 Rate=5% n=4 year Let another deposit after 4 years be denoted by…

Q: *A TV costing £800 pounds is paid by equal payments made at the end of the week for three years.…

A: This is a question from loan amortization. It's based on time value of money concept. The weekly…

Question

Give typing answer with explanation and conclusion

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

If two returns are positively related to each other, they will have a ________, and if they are negatively related to each other, the ______________. Group of answer choices positive covariance, covariance will be negative positive covariance, standard deviation will be negative negative covariance, covariance will be zero negative covariance, covariance will be positive This type of risk affects a large number of assets, each to a greater or lesser degree. Group of answer choices systematic risk unsystematic risk idiosynchratic risk principle of diversification True/False. The Dividend Discount Model can be applied to firms that do not pay dividends. Group of answer choices True False
The expected value, standard deviation of returns, and coefficient o below.) \table[[Asset A],[Possible Outcomes,Probability,Returns (%)
The regression analysis is normally depicted as "y = Ax+ B." What does "A" indicate in the equation? A) It is the expected change in the independent variable for a one-unit change in the dependent variable OB) It is the significance level for the test OC) It is the expected change in the dependent variable for a one-unit change in the independent variable OD) The confidence interval
Illustrate the calculation of the standard deviation of returns?
The value of a correlation is reported to be r = 0.25. How is this interpreted?
Which of the following indicates that two variables tend to move in the same direction? a.negative covariance b.probability c.covariance d.positive covariance
Consider the following time series: a. Construct a time series plot. What type of pattern exists in the data? b. Use simple linear regression analysis to find the parameters for the line that minimizes MSE for this time series. c. What is the forecast for t = 6?
Find correlation for two returns.
the formula for the correlation statistic is?
How is the standard deviation of returns calculated?
The concept of beta is most closely associated with:a. Correlation coefficients.b. Mean-variance analysis.c. Nonsystematic risk.d. Systematic risk.
Ch. 11. If two returns are positively related to each other, they will have a ________, and if they are negatively related to each other, the ______________. Group of answer choices positive covariance, covariance will be negative negative covariance, covariance will be zero positive covariance, standard deviation will be negative negative covariance, covariance will be positive