Q:
A:
The covariance between Stock A and Stock Z is 10.32, while the correlation coefficient between the two stocks is 0.35. If the variance to Stock Z is 58, which of the following would best describe the total risk that's inherent in Stock A.
A) It can't be determined since erroneous data has been provided.
B) 3.87%
C) 3.87%
D) 0.51%
A) It can't be determined since erroneous data has been provided.
B) 3.87%
C) 3.87%
D) 0.51%
The correct answer is: A)
COV_{A,Z }= r_{A,Z}s_{A}s_{Z}Note: Since s can never be negative, COV_{A,Z} and r_{A,Z} must always have the same sign. (ie., if one is positive then the other must be positive as well).
Therefore, the data was erroneous.
COV_{A,Z }= r_{A,Z}s_{A}s_{Z}Note: Since s can never be negative, COV_{A,Z} and r_{A,Z} must always have the same sign. (ie., if one is positive then the other must be positive as well).
Therefore, the data was erroneous.
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