Security M Has Expected Return of 17% and Standard Deviation

question 35

Multiple Choice

Security M has expected return of 17% and standard deviation of 28%. Security S has expected return of 13% and standard deviation of 15%. If the two securities have a correlation coefficient of 0.78, what is their covariance?

• A) 0.018
• B) 0.029
• C) 0.033
• D) 0.045
• E) 0.054

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Definitions:

Merit Raise

A salary increase awarded to an employee based on their job performance, distinguishing it as a reward for merit rather than other factors like seniority.

Poor Performing Employee

An individual in an organization whose work performance does not meet established standards or expectations.

Negative Signal

An indication or warning of potential problems, risks, or undesirable outcomes, often leading to a reassessment of strategies or decisions.

Bonus Pay

A plan that provides one-time payments based on performance accomplishments.