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Thirty-Four Observations of a Dependent Variable (Y) and Two Independent

question 74

Essay

Thirty-four observations of a dependent variable (Y) and two independent variables resulted in an SSE of 300. When a third independent variable was added to the model, the SSE was reduced to 250. At 95% confidence, determine whether or not the third independent variable contributes significantly to the model.

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Definitions:

Unique Risk

The risk specific to an individual asset, such as a stock, which can be mitigated through diversification.

Individual Security

A financial instrument (such as a stock or bond) representing an individual's ownership or creditor relationship with a corporation or governmental entity.

Market Risk Premium

The excess return that investors require for choosing a risky investment over a risk-free investment.

Risk-averse

Referring to the preference of minimizing exposure to risk and avoiding situations that could lead to loss.

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