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?

Question

(A) 50.
(B) 100.
(C) 0.
(D) 1.
(E) There is not enough information to tell.

(Solution is B, 100)

Answer 1

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.