# Covariance of returns

An analyst gathered the following information about a portfolio comprised of 2 assets Asset Weight E® Sd X 0.6 11% 5% Y 0.4 7% 4% If covarinace of returns for 2 assets = 0.75 then the expected return and expected standard deviation of the portfolio are closest to : E® = 9.4% i know the formula sd for a portfolio but in the asnswer they use = [(0.602 x 0.052) + (0.402 x 0.042) + (2 x 0.60 x 0.40 x 0.75 x 0.05 x 0.04)]0.5 = [0.0009 + 0.000256 + 0.00072]0.5 = [0.001876]0.5 = 0.0433 ¡Ö 4.3% my question is isnt 0.75 the covariance but in the answer it shows as the correlation,

yes, is this from the last question on CFAI mock 2? It’s an error in the test.

That looks like an error to me my man just skip it and don’t worry about it. You know the correct way to caluclate stick to that.

How did you work on this skut?

ok great my answer was = [0.0009 + 0.000256 + 0.36]0.5

I got the same thing, but why the 0.5 at the end?

^.5?

hey i dont have calc that does cov functions…do u guys recommend that I have one for the exam?

Haha, I just spent 20 minutes on that question today. I kept getting .6 as my SD, I was like wtf it’s not even close to 4 or 19.