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23 April, 06:57

Security M has expected return of 17% and standard deviation of 32%. Security S has expected return of 13% and standard deviation of 19%. If the two securities have a correlation coefficient of 0.78, what is their covariance

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  1. 23 April, 07:05
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    0.047424

    Explanation:

    Given that

    Expected return of security M = 17%

    Standard deviation of Security M = 32%

    Expected return of security S = 13%

    Standard deviation of security S = 19%

    And, the correlation coefficient = 0.78

    So, by considering the above information the co variance is

    = Correlation coefficient * Standard deviation of Security M * Standard deviation of security S

    = 0.78 * 0.32 * 0.19

    = 0.047424
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