The correlation between the return on the risk-free asset with a constant return over time and the return on a risky asset is always:
A).-1
B)0
C)1
D)0.5

Question

Quizplus · Accepted Answer

The return on a risk-free asset is constant over time and not affected by market risks. Therefore, it has zero correlation with the return on a risky asset, which can vary significantly based on market conditions. So, the answer is 0.

The Correlation Between the Return on the Risk-Free Asset with a Constant