Security X Has Expected Return of 9% and Standard Deviation

question 79

Multiple Choice

Security X has expected return of 9% and standard deviation of 18%. Security Y has expected return of 12% and standard deviation of 21%. If the two securities have a correlation coefficient of −0.4, what is their covariance?

• A) 0.0388
• B) 0.0706
• C) 0.0184
• D) −0.0133
• E) −0.0151

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Definitions:

Pigouvian

Relating to taxes or policies introduced to correct the effects of negative externalities in the market.

Public Park

A space, whether natural, partially natural, or man-made, dedicated to recreational activities for humans or the conservation of wildlife and natural ecosystems.

Optimum

The most favorable condition or level for growth, reproduction, or success.

Socially Optimal

The point at which the benefits to society of an action, policy, or project, are maximized, taking into account all costs and benefits.