Stock a Is Expected to Return 12 Percent in a Normal

Multiple Choice

Stock A is expected to return 12 percent in a normal economy and lose 7 percent in a recession.Stock B is expected to return 8 percent in a normal economy and 2 percent in a recession.The probability of the economy being normal is 80 percent and the probability of a recession is 20 percent.What is the covariance of these two securities?

A) .004203
B) .004115
C) .003280
D) .003876
E) .003915