A mutual fund with excess returns very similar to those of the market will have an R2(coefficient of determination)of

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Quizplus · Accepted Answer

An R2 value measures the proportion of the variability of the dependent variable (in this case, excess returns of the mutual fund) that can be explained by the independent variable (in this case, the market). An R2 value of 1 indicates a perfect correlation, whereas an R2 value of 0 indicates no correlation. Since the mutual fund has excess returns very similar to those of the market, we can assume that the R2 value will be high but not perfect, so slightly less than 1 is the best choice. Therefore the coefficient of determination for the mutual fund will likely be slightly less than 1.

A Mutual Fund with Excess Returns Very Similar to Those