An asset in the Australian market has a consumption beta of 0.5.If the variance of the asset is 0.024 and the variance of the growth rate in consumption is 0.035,what is the asset's covariance with the growth rate in consumption?

A) $ 0.0010 $
B) $ 0.0120 $
C) $ 0.0175 $
D) $ 2.0830 $

Question

An asset in the Australian market has a consumption beta of 0.5.If the variance of the asset is 0.024 and the variance of the growth rate in consumption is 0.035,what is the asset's covariance with the growth rate in consumption?

A) $ 0.0010 $
B) $ 0.0120 $
C) $ 0.0175 $
D) $ 2.0830 $

Quizplus · Accepted Answer

The consumption beta is defined as the covariance of the asset with the growth rate of consumption divided by the variance of the growth rate in consumption.In this case,we can solve for the covariance by multiplying the consumption beta (0.5)by the variance of the growth rate in consumption (0.035)to give an answer of 0.0175.

An Asset in the Australian Market Has a Consumption Beta 0.0010 0.0010 0.0010

An Asset in the Australian Market Has a Consumption Beta $0.0010$