Stock M and Stock N have had the following returns for the past three years: 12 percent, -10 percent, 32 percent; and 15 percent, 6 percent, 24 percent, respectively. Calculate the covariance between the two securities. (Ignore the correction for the loss of a degree of freedom set out in the text.)
A)-99
B)126
C)+250
D)-250

Question

Quizplus · Accepted Answer

The covariance is calculated by finding the average of the products of the deviations of each stock's returns from their respective means. The calculation results in a covariance of 126.

Stock M and Stock N Have Had the Following Returns