The Covariance of the Returns Between Einstein Stock and Bohr

question 19

Multiple Choice

The covariance of the returns between Einstein Stock and Bohr Stock is 0.0087. The standard deviation of Einstein is 0.26, and the standard deviation of Bohr is 0.37. What is the correlation coefficient between the returns of the two stocks?

• A) 0.090437
• B) 0.096200
• C) 0.90437
• D) 0.96200

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Definitions:

Value Foregone

The opportunity cost of choosing one investment or action over another, representing the benefits lost from not selecting the alternative.

Cost of Capital

The lowest return required for a project involving capital investment, such as building a new production plant, to be deemed feasible.

Mutually Exclusive

In project selection or decision making, mutually exclusive refers to options where the selection of one option precludes the selection of another.

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment by calculating the difference between the present value of cash inflows and outflows over a period of time.