The correct answer is A. 0.22.

Explanation: The covariance between the returns of the asset and the market portfolio can be calculated using the formula:

$$\text{Cov}(R_i, R_m) = \beta_i \times \sigma_m^2$$

Where:

• $\beta_i$ is the beta of the asset (1.8).
• $\sigma_m^2$ is the variance of the market portfolio returns, calculated as the square of the standard deviation (0.35^2 = 0.1225).

Substituting the values:

$$\text{Cov}(R_i, R_m) = 1.8 \times 0.1225 = 0.2205$$

This result rounds to 0.22, making option A correct.

Why not B or C?

• Option B (0.40) represents the systematic variance of the portfolio, calculated as $\beta_i^2 \times \sigma_m^2$.
• Option C (0.90) is derived from the correlation coefficient formula, not the covariance.