1. If two projects have cash flows that tend to move independently of each other (that is, are not related to each other), what can we expect their covariance to be?

a) Equal to (approximately) 1

b) Equal to (approximately) 0

c) Equal to (approximately) -1

2. Which of the following describes the statistical relationship known as covariance?

a) A measure of the spread of the realized values of a random variable

b) An unbounded quantity that shows the relative tendency of asset prices to move together.

c) The variance divided by the expected value.