Security X Has Expected Return of 7% and Standard Deviation

question 6

Multiple Choice

Security X has expected return of 7% and standard deviation of 14%. Security Y has expected return of 11% and standard deviation of 22%. If the two securities have a correlation coefficient of 0.45, what is their
Covariance?

• A) 0.0388
• B) -0.0108
• C) 0.0184
• D) -0.0139
• E) -0.1512

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Definitions:

Weights

In finance, weights often refer to the proportion of each component of a portfolio or fund, typically expressed as a percentage of the total.

Common Equity

The amount of ownership interest in a corporation, represented by common stock held by investors.

Preferred Shares

Type of equity security that offers dividends and other benefits before common stockholders are compensated, often with no voting rights.

Rate of Return

The rate of return is the percentage of gain or loss on an investment over a specified time period, comparing the initial investment cost to the final value.