Security X has expected return of 9% and standard deviation of 18%. Security Y has expected return of 12% and standard deviation of 21%. If the two securities have a correlation coefficient of 0.4, what is their covariance?
A. 0.0388
B. 0.0706
C. 0.0184
D. –0.0133
E. –0.0151
E. –0.0151
Cov(r X, r Y) = (–0.4)(0.18)(0.21) = 0.0151.
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