While Stock a Has a Standard Deviation of 37 Percent

question 76

Multiple Choice

While Stock A has a standard deviation of 37 percent, Stock B has a standard deviation of 46 percent. If the correlation between the stocks is 0.1528, what is the covariance?

• A) 0.1702
• B) 0.0260
• C) 0.2875
• D) 0.1270
• E) 0.0565

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Definitions:

Expected Value

A calculated average of all possible values of a random variable, weighted by their probabilities of occurrence.

Payoffs

The returns or benefits received as a result of an action or investment.

Expected Value

The anticipated value or average outcome of a random variable, taking into account all possible outcomes weighted by their probabilities.

Probabilities

A measure expressing the likelihood of occurrence of a given event, typically defined on a scale from 0 to 1, where 0 means the event cannot occur and 1 indicates certainty.