Security X Has Expected Return of 7% and Standard Deviation

question 24

Multiple Choice

Security X has expected return of 7% and standard deviation of 14%.Security Y has expected return of 11% and standard deviation of 22%.If the two securities have a correlation coefficient of -0.45, what is their covariance?

• A)0.0388
• B)-0.0108
• C)0.0184
• D)-0.0139

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Definitions:

Short-Term Loan

A type of loan that is scheduled to be repaid in less than a year.

Equity Financing

The sale of common stock or the use of retained earnings to provide long-term financing.

Common Stock

A type of equity security that represents ownership in a corporation, with rights to vote on corporate matters and receive dividends.

Effective Rate

A measure of the actual interest rate on a loan or investment, taking into account the compounding of interest over a given period of time.