As a Project for His Business Statistics Class, a Student

question 50

Multiple Choice

As a project for his business statistics class, a student examined the factors that determined parking meter rates throughout the campus area. Data were collected for the price per hour of parking, blocks to the quadrangle, and one of the three jurisdictions: on campus, in downtown and off campus, or outside of downtown and off campus. The population regression model hypothesized is Y_i = α + β₀ + β₁X_1i + β₂X_2i + β₃X_3i + ε
Where
Y is the meter price
X₁ is the number of blocks to the quad
X₂ is a dummy variable that takes the value 1 if the meter is located in downtown and off campus and the value 0 otherwise
X₃ is a dummy variable that takes the value 1 if the meter is located outside of downtown and off campus, and the value 0 otherwise
Suppose that whether the meter is located on campus is an important explanatory factor. Why should the variable that depicts this attribute not be included in the model?

• A) Its inclusion will introduce autocorrelation.
• B) Its inclusion will introduce collinearity.
• C) Its inclusion will inflate the standard errors of the estimated coefficients.
• D) Both B and C.

Recognize the limitations of diversification in reducing portfolio risk.

Distinguish between systematic and nonsystematic risk in the context of the single-index model and portfolio management.

Interpret the security characteristic line (SCL) and its components, including alpha and beta.

Analyze factors influencing beta coefficients of stocks.

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Definitions:

Product X

A placeholder name commonly used to refer to a generic or unspecified product in discussions or examples.

Activity-based Costing

An approach to assigning an organization's overhead costs to specific products or services based on the activities undertaken to produce those products or services.

Direct Labour-hours

Direct labor-hours are the total hours spent by workers who directly contribute to the manufacture of a product, a direct measure of labor input.

Activity Cost Pools

Aggregations of all the costs associated with specific activities, used in activity-based costing to allocate costs more accurately.