Answer: 0.0176

## Explanation To find the variance of stock J, we need to first calculate its standard deviation using the correlation formula: $$\text{Corr}(J, K) = \rho_{J,K} = \frac{\text{Cov}(J, K)}{\sigma_J \cdot \sigma_K}$$ Rearranging this formula to solve for the standard deviation of stock J: $$\sigma_J = \frac{\text{Cov}(J, K)}{\sigma_K \cdot \rho_{J,K}}$$ Substituting the given values: - Covariance (Cov(J, K)) = 0.0054 - Standard deviation of stock K (σ_K) = 0.11 - Correlation (ρ_{J,K}) = 0.37 $$\sigma_J = \frac{0.0054}{0.11 \cdot 0.37} = \frac{0.0054}{0.0407} = 0.1327$$ Now, the variance of stock J is the square of its standard deviation: $$\sigma_J^2 = (0.1327)^2 = 0.017609 \approx 0.0176$$ Therefore, the variance of the returns on stock J is **0.0176**. **Why other options are incorrect:** - **B (0.0407)**: This is the denominator value (σ_K × ρ_{J,K}) from the standard deviation calculation, not the variance. - **C (0.0735)**: This appears to be unrelated to the calculation. - **D (0.1327)**: This is the standard deviation of stock J, not the variance.

Author: LeetQuiz .