The Covariance Between the Returns of a and B Is

question 7

Multiple Choice

The covariance between the returns of A and B is -0.112. The standard deviation of the rates of return is 0.26 for stock A and 0.81 for stock B. The correlation of the rates of return between A and B is the closest to ________.

• A) -1.88
• B) -0.53
• C) 0.53
• D) 1.88

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Definitions:

Cost Constraint

The principle that the cost of providing financial information should not outweigh the benefits that the information provides to users.

Generating Revenue

The process by which a company produces income from its operations, sales, or services.

Consumed Assets

Assets that have been used and cannot be restored or recovered, typically expensed in the period they are used.

Services Used

Consumption of services in operations, such as consulting, maintenance, or legal services, recorded as expenses.