Answer: 0.22

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.

Author: LeetQuiz Editorial Team