A mutual fund with excess returns very similar to those of the market will have an R² (coefficient of determination) of: A)slightly less than 1. B)slightly greater than 1. C)greater than or less than one. D)There is not enough information to tell

Question

Quizplus · Accepted Answer

A coefficient of determination (R-squared) of 1 indicates perfect correlation with the market, while a coefficient of determination of 0 indicates no correlation at all. Therefore, a mutual fund with returns very similar to those of the market is likely to have an R-squared approaching 1, but will not be exactly 1. Therefore, choice A is the best answer.

A Mutual Fund with Excess Returns Very Similar to Those