An asset in the Australian market has a consumption beta of 3.0.If the variance of the asset is 20% and the variance of the growth rate in consumption is 12.5%,what is the asset's covariance with the growth rate in consumption?

A) $ 45 \% $
B) $ 37.5 \% $
C) $ 15 \% $
D) $ 60 \% $

Question

An asset in the Australian market has a consumption beta of 3.0.If the variance of the asset is 20% and the variance of the growth rate in consumption is 12.5%,what is the asset's covariance with the growth rate in consumption?

A) $ 45 \% $
B) $ 37.5 \% $
C) $ 15 \% $
D) $ 60 \% $

Quizplus · Accepted Answer

Rearranging equation 9.1,and using the inputs provided,we can compute the covariance of the asset with the growth rate in consumption to be 3 ×0.125 = 0.375.

An Asset in the Australian Market Has a Consumption Beta 45% 45 \% 45%

An Asset in the Australian Market Has a Consumption Beta $45 \%$