Security X Has Expected Return of 12% and Standard Deviation

question 43

Multiple Choice

Security X has expected return of 12% and standard deviation of 18%. Security Y has expected return of 15% and standard deviation of 26%. If the two securities have a correlation coefficient of 0.7, what is their covariance?

• A) 0.038
• B) 0.070
• C) 0.018
• D) 0.033
• E) 0.054

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Definitions:

Below-Market Price

A price for goods or services that is lower than the current market rate or the value typically expected for similar items under normal market conditions.

Duress

A condition where an individual is forced or coerced into acting against their will or making decisions under pressure or threat.

Investment Firm

A business or financial institution that invests the pooled capital of investors in financial securities, typically offering a range of investment products and services.

Commission

A group designated to perform a specific function or investigation, or a fee paid to an agent for services rendered.