The correlation between the historical returns of Stock A and Stock B is 0.75. If the variance of Stock A is 0.16 and the variance of Stock B is 0.09, the covariance of returns of Stock A and Stock B is closest to:
B is correct. Cov(A,B) = PABσAσB = 0.75 × 0.4 × 0.3 = 0.09.