Answer: 0.5

The correct answer is **B (0.5)**. The correlation between the security's returns and the market's returns is calculated using the formula: \[ \rho_{im} = \beta_i \times \frac{\sigma_m}{\sigma_i} \] Where: - \( \rho_{im} \) is the correlation coefficient. - \( \beta_i \) is the security's beta (0.35). - \( \sigma_m \) is the standard deviation of the market returns (18%). - \( \sigma_i \) is the standard deviation of the security's returns (12%). Substituting the given values: \[ \rho_{im} = 0.35 \times \frac{0.18}{0.12} = 0.525 \approx 0.5 \] **Option A (0.2)** is incorrect because it uses an incorrect formula or confuses standard deviations with variances. **Option C (0)** is incorrect as it misapplies the formula by using variances instead of standard deviations.

Author: LeetQuiz Editorial Team