At a point where the return on asset A and the return on asset B are both above their average,the numerator in the coefficient of determination will be:

Question

Quizplus · Accepted Answer

The coefficient of determination (also known as R-squared) measures the proportion of variation in one variable (the dependent variable) that can be explained by the variation in another variable (the independent variable). The value of R-squared ranges from 0 to 1, where 0 indicates no relationship and 1 indicates a perfect relationship.

In this scenario, both asset A and B are performing above their average, which means their returns are high. When the returns on both assets are above their average, the numerator (the sum of the squared deviations of the actual returns from their mean) in the formula for calculating R-squared will also be high. Therefore, the value of R-squared will be positive, indicating a strong relationship between the returns on asset A and B.

Hence, the best choice is option B, i.e., positive.

At a Point Where the Return on Asset a and the Return