The Term Corr(ε _R,ε _T)= 0 Tells Us That

question 36

Multiple Choice

The term Corr(ε _R,ε _T) = 0 tells us that:

• A) the error terms of company R and T are 0.
• B) the unsystematic risk of companies R and T is unrelated or uncorrelated.
• C) the correlation between the returns of companies R and T is greater than zero.
• D) the systematic risk companies R and T is unrelated.

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Definitions:

Cash Sales Price

The amount of cash received from a transaction before any deductions, like discounts or returns.

Non-interest-bearing Note

A promissory note or loan agreement that does not require the borrower to pay interest, only to repay the principal amount.

Book Value Method

An accounting technique that determines the value of an asset based on its original cost minus any depreciation, amortization, or impairment costs.

Par Value

The face value of a bond or stock, as stated on the certificate, which is the amount paid out at maturity for bonds, or the stated value per share for stocks.