Posted by **Susan** on Sunday, December 6, 2009 at 3:53am.

1. Assume that q and z are two random variables that are perfectly positively correlated. q takes the value of 20 with probability 0.5 and the value of zero with probability 0.5, while z takes the value of 10 with probability 0.5 and the value of zero with probability 0.5. What is the COVARIANCE of q and z?

(A) 50.

(B) 100.

(C) 0.

(D) 1.

(E) There is not enough information to tell.

(Solution is B, 100)

- Economics/Statistics -
**economyst**, Monday, December 7, 2009 at 1:25pm
Because they are perfectly postively correlated, the covariance between the q and z is 1.00

Because, (while not explained or pointed out), the possible answers are expressed in percentage terms and the decimal point is moved over 2 places, the answer you seek is B.

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