Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30 -11 Mild recession 0.25 -15 13 Normal Growth 0.40 15 12 Boom 0.30 32 -7 Calculate the covariance and correlation coefficient of the two funds.
Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30 -11 Mild recession 0.25 -15 13 Normal Growth 0.40 15 12 Boom 0.30 32 -7 Calculate the covariance and correlation coefficient of the two funds.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 13MC: Which of the following discounts future cash flows to their present value at the expected rate of...
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Scenario | Probability | Stock fund |
Bond fund Rate of Return |
Severe recession | 0.05 | -30 | -11 |
Mild recession | 0.25 | -15 | 13 |
Normal Growth | 0.40 | 15 | 12 |
Boom | 0.30 | 32 | -7 |
Calculate the covariance and correlation coefficient of the two funds.
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