Security X Has Expected Return of 14% and Standard Deviation

question 33

Multiple Choice

Security X has expected return of 14% and standard deviation of 22%. Security Y has expected return of 16% and standard deviation of 28%. If the two securities have a correlation coefficient of 0.8, what is their covariance?

• A) 0.038
• B) 0.049
• C) 0.018
• D) 0.013
• E) 0.054

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Definitions:

Economic Sector

A division within an economy, specifying the type of activity or services performed, such as agriculture, manufacturing, or services.

Postindustrial Societies

Societies that are characterized by an economy dominated by the service sector and information technology, rather than industrial manufacturing.

Financial Leverage

The use of borrowed capital (debt) in addition to equity to finance a company's assets, aiming to increase the return on equity.

Critical Decisions

Decisions of significant importance that often influence the direction or success of a particular strategy or organization.