When Determining Whether to Include or Exclude a Variable in Regression

question 6

Multiple Choice

When determining whether to include or exclude a variable in regression analysis,if the p-value associated with the variable's t-value is above some accepted significance value,such as 0.05,then the variable

• A)is a candidate for inclusion.
• B)is a candidate for exclusion.
• C)is redundant.
• D)does not fit the guidelines of parsimony.

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Definitions:

Component Cost

The cost related to each source of capital, such as debt and equity, that a company uses for funding.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends.

Cost of Retained Earnings

The opportunity cost for shareholders for having the company retain the earnings instead of distributing them, often considered in investment and dividend decisions.

Risk Free Rate

The theoretical rate of return of an investment with zero risk of financial loss, often represented by the yield on government bonds.