1. The index model has been estimated for stocks A and B with the following results: R(A) = 0.04 + 1.1Rm R(B) = 0.02 + 0.5Rm Additionally, the standard deviation of the market index is 18%. What is the covariance between stocks A and B?
2. Your company is considering an investment that would involve the following initial outlays: cost of equipment: $275467, installation: $28020, and change in NOWC: $37216. The equipment is classified to be depreciated according to the MACRS 3-year table, with the following depreciation schedule: year 1 = 33%, year 2 = 45%, year 3 = 15%, year 4 = 7%. What is the depreciation expense in year 2?