You Are Constructing a Scatter Plot of Excess Returns for Stock

question 34

Multiple Choice

You are constructing a scatter plot of excess returns for stock A versus the market index. If the correlation coefficient between stock A and the index is -1, you will find that the points of the scatter diagram ________ and the line of best fit has a ________.

• A) all fall on the line of best fit; positive slope
• B) all fall on the line of best fit; negative slope
• C) are widely scattered around the line; positive slope
• D) are widely scattered around the line; negative slope

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Definitions:

Never-ending Process

A continuous, unending cycle or series of activities, often related to improvement, innovation, or development within a business context.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance costs.

Variable Costs

Expenses that change in proportion to the volume of goods or services a company produces, such as materials and labor costs.

Primary Management Function

The core activities central to managing an organization, often categorized as planning, organizing, leading, and controlling.