The Index Model Has Been Estimated for Stocks a and B

question 16

Multiple Choice

The index model has been estimated for stocks A and B with the following results:R_A = 0.03 + 0.7R_M + e_A. R_B = 0.01 + 0.9R_M + e_B.
Σ_M = 0.35; σ(e_A) = 0.20; σ(e_B) = 0.10.
The covariance between the returns on stocks A and B is

• A) 0.0384.
• B) 0.0406.
• C) 0.1920.
• D) 0.0772.
• E) 0.4000.

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Definitions:

SES (Socioeconomic Status)

An assessment of where a person or family stands in societal and economic terms compared to the rest, taking into account their income, educational achievements, and professional role.

Health Care

The organized provision of medical services to individuals or a community.

Charles Spearman

A British psychologist who is best known for his work in statistics and intelligence theory, including the concept of general intelligence (g factor).

Psychologist

A professional specializing in diagnosing and treating mental, emotional, and behavioral disorders through various therapies and techniques.