The index model has been estimated for stocks A and B with the following results: RA = 0.01 + 0.5RM + eA.
RB = 0.02 + 1.3RM + eB.
ΣM = 0.25; σ(eA) = 0.20; σ(eB) = 0.10.
The covariance between the returns on stocks A and B is
A) 0.0384.
B) 0.0406.
C) 0.1920.
D) 0.0050.
E) 0.4000.
Correct Answer:
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