The standard deviation of return on investment A is 19%, while the standard deviation of return on investment B is 14%. If the covariance of returns on A and B is 0.004, the correlation coefficient between the returns on A and B is

The standard deviation of return on investment A is 19%, while the standard deviation of return on investment B is 14%. If the covariance of returns on A and B is 0.004, the correlation coefficient between the returns on A and B is

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 3PROB

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

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The standard deviation of return on investment
A is 19%, while the standard deviation of return
on investment B is 14%. If the covariance of
returns on A and B is 0.004, the correlation
coefficient between the returns on A and B is
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