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

Question

Quizplus · Accepted Answer

A correlation coefficient of -1 indicates a perfect negative linear relationship between the excess returns of Stock A and the market index. Therefore, all points of the scatter diagram will fall on a straight line with a negative slope, which represents the line of best fit.

You Are Constructing a Scatter Plot of Excess Returns for Stock