Answer: 0.010.

## Explanation The covariance between portfolio returns and market returns can be calculated using the beta formula: **Beta (β) = Covariance(Portfolio, Market) / Variance(Market)** Where: - Beta = 0.5 (given) - Variance(Market) = (Standard Deviation of Market)^2 = (0.20)^2 = 0.04 Rearranging the formula: **Covariance(Portfolio, Market) = Beta × Variance(Market)** **Covariance = 0.5 × 0.04 = 0.02** Wait, let me recalculate carefully: **Beta = Cov(P,M) / Var(M)** **0.5 = Cov(P,M) / (0.20)^2** **0.5 = Cov(P,M) / 0.04** **Cov(P,M) = 0.5 × 0.04 = 0.02** But looking at the options: A. 0.005 B. 0.010 C. 0.020 My calculation gives 0.020, which corresponds to option C. However, let me double-check the calculation: **Standard deviation of market = 20% = 0.20** **Variance of market = (0.20)^2 = 0.04** **Beta = 0.5** **Covariance = Beta × Variance = 0.5 × 0.04 = 0.02** This is exactly 0.020, which matches option C. Alternatively, we can also calculate covariance using: **Covariance = Correlation × σ_P × σ_M** Where correlation can be found from: **Beta = Correlation × (σ_P / σ_M)** **0.5 = Correlation × (0.10 / 0.20)** **0.5 = Correlation × 0.5** **Correlation = 1** Then: **Covariance = 1 × 0.10 × 0.20 = 0.02** Both methods give 0.020, so the correct answer is **C. 0.020**.

Author: LeetQuiz .