In the next year, there is a 40% chance of a bear market, and a 60%...

In the next year, there is a 40% chance of a bear market, and a 60% change of a bull market. Over the next year:

Debt will realize a 0% return in a bear market, and a 6% return in a bull market.
Equity will realize a -10% return in a bear market, and a 20% return in a bull market

What is the correlation of debt and equity? (decimal number, 3 decimal places)

Expert Solution

jeff jeffy answered 1 year ago

In the next year, there is a 40% chance of a bear market, and a 60%...

In the next year, there is a 40% chance of a bear market, and a 60% change of a bull market. Over the next year: Debt will realize a 0% return in a bear market, and a 6% return in a bull market. Equity will realize a -10% return in a bear market, and a 20% return in a bull market. What is the covariance of debt and equity? (decimal number, 4 decimal places)

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In the next year, there is a 40% chance of a bear market, and a 60%...

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