The standard deviation of return on investment A is 25%, while the standard deviation of return on investment B is 20%. If the correlation coefficient between the returns on A and B is −0.260, the covariance of returns on A and B is . Multiple Choice –0.2080 –0.0130 0.0130 0.2080

–0.0130

Explanation:

Correlation given the variance and the standard deviation of the two returns can be calculated by;

Correlation coefficient = Covariance of returns on investment A and B / (Standard deviation of return on investment A * Standard deviation of return on investment B).

Rearranging the formula, Covariance becomes;

Covariance of returns on investment A and B = Correlation coefficient * (Standard deviation of return on investment A * Standard deviation of return on investment B)

Covariance of returns on investment A and B = -0.260 * 0.25 * 0.20

Covariance of returns on investment A and B  = –0.0130

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

be mindful of your own reaction,use positive self-talk,   and debrief.