A Security Has a Zero Covariance with the Market

question 57

Multiple Choice

A security has a zero covariance with the market. This means that:

• A)the return on the security is always equal to that of the market.
• B)the return on the security moves in the same direction as the market return.
• C)the security is a risk-free security.
• D)there is no identifiable relationship between the return on the security and that of the market.
• E)the return on the security must vary more than that of the market.

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Definitions:

Commitment To Finance

A lender's promise to provide funds under specified conditions to a borrower for a particular transaction.

After-Tax Cost

The actual cost of an investment or loan after considering the effects of taxes on its profitability or expense.

Salvage Value

The estimated resale value of an asset at the end of its useful life.

Legal Owner

The person or entity that has legal title or ownership of property or assets.