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The expected return of the market portfolio is 10% and the standard deviation of the returns...

The expected return of the market portfolio is 10% and the standard deviation of the returns on the market portfolio is 15%. Betas of two stocks are 0.8 and 1.2. The covariance between their returns is approximately

Select one:

a. 0.0960

b. 0.1440

c. 0.0207

d. 0.0216

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Answer #1

Covariance between their return = beta of A x beta of B x variance of market

Covariance between their return = 0.8 x 1.2 x (0.15)2 = 0.0216

Answer : d : 0.0216 (Thumbs up please)

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