Question: Suppose two asset returns are described by a two factor model, n = 0% +161 +1.812 + ej 2 = -1% + 24 +0.52 +

Suppose two asset returns are described by a two factor model, n = 0% +161 +1.812 + ej 2 = -1% + 24 +0.52 + 2 where the volatility of first factor is 30%, the volatility of the second factor is 10%, and the correlation between the two factors is 0.5. Suppose also that the volatilities of the error terms ej and ez are both 10%. What is the covariance of and 12? (Nearest 0.0001)

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