Projects That Are Negatively Correlated

question 37

Multiple Choice

Projects that are negatively correlated

• A) reduce the standard deviation of returns for the firm.
• B) increase the possible losses of the firm.
• C) are generally in the same industry.
• D) none of these options are correct.

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Definitions:

Financing

Financing is the process of providing funds for business activities, making purchases, or investing.

Commitment Fees

Fees charged by lenders to a borrower for an unused or untapped credit line, ensuring the lender retains availability of the funds.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, often represented by government bonds.

Compensating Balances

Minimum balance requirements imposed by financial institutions on certain accounts, which borrowers must maintain to compensate for the lower interest rate or fees on loans.