When Two Variables Are Not Related, the Correlation Coefficient Will

question 80

Multiple Choice

When two variables are not related, the correlation coefficient will be close to:

• A) .00.
• B) -1.00.
• C) +1.00.
• D) +.50.

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Definitions:

Degree of Financial Leverage

A measure that assesses the sensitivity of a company's earnings per share to fluctuations in its operating income, based on its use of fixed-cost financing.

Earnings Before Interest

Net income before interest expenses have been deducted; used to analyze the profitability of a company's core operations without the cost of borrowing.

Tax Rate

The percentage at which an individual or corporation is taxed by the government on the income or profit earned.

Optimal Capital Structure

The most favorable mix of debt and equity financing that minimizes a company's cost of capital and maximizes its stock price.