The standard deviation of return on investment A is .10 while the standard deviation of return on investment B is .04.If the correlation coefficient between the returns on A and B is -.50,the covariance of returns on A and B is _________.
A) -.0447
B) -.0020
C) .0020
D) .0447

Question

Quizplus · Accepted Answer

The formula for covariance is: Cov(A,B) = Corr(A,B) x Std Dev(A) x Std Dev(B). 
Given the values, Cov(A,B) = (-0.50) x (0.10) x (0.04) = -0.0020. 
Therefore, the answer is option B.

The Standard Deviation of Return on Investment a Is