The correlation of the returns of a risk-free Treasury bond with the returns of the general stock market will be
A)equal to 0.0.
B)between -1.0 and +1.0, depending on the yield-to-maturity of the Treasury bond.
C)equal to 1.0.
D)equal to -1.0

Question

Quizplus · Accepted Answer

Risk-free Treasury bonds are not affected by stock market movements, so there should be no correlation between the returns of the two. Therefore, the correlation will be equal to 0.0. The returns of a risk-free Treasury bond are not affected by the movements of the stock market, so the correlation between the two will be zero.

The Correlation of the Returns of a Risk-Free Treasury Bond