The Variance of the Rates of Return Is 0

question 120

Multiple Choice

The variance of the rates of return is 0.25 for stock X and 0.01 for stock Y. The covariance between the returns of X and Y is −0.01. The correlation of the rates of return between X and Y is ________.

• A) −0.25
• B) −0.20
• C) 0.20
• D) 0.25

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Definitions:

Tradable Emissions Permits

A system in which companies are allocated permits that allow them to emit a certain level of pollutants, with the option to buy, sell, or trade permits with other companies.

Equilibrium Price

The price at which the quantity of goods supplied is equal to the quantity of goods demanded in the market, leading to market balance.

Equilibrium Quantity

Equilibrium quantity is the quantity of goods or services supplied and demanded at the equilibrium price, where the quantity supplied equals the quantity demanded in a market.

Emissions Tax

A tax levied on companies for the pollutants they emit into the environment.