If There Is a Strong Correlation Between Variables a and B

question 3

Multiple Choice

If there is a strong correlation between variables A and B, what is the most likely explanation?

• A)A is causing B
• B)B is causing B
• C)A and B are caused by C
• D)could be any of the above - the correlation by itself does not allow one to decide

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Definitions:

Average Rate of Return

A financial ratio indicating the average annual return earned through an investment over its lifetime, expressed as a percentage of the initial investment cost.

Net Income

The total earnings of a company after subtracting all costs and expenses from revenue.

Net Cash Flow

The difference between a company's cash inflows and outflows over a period, indicating overall liquidity.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods, leading to exponential growth of the investment or loan.