If a Qualitative Variable Has K Levels, the Number of Dummy

question 18

Multiple Choice

If a qualitative variable has k levels, the number of dummy variables required is _____.

• A) k − 1
• B) k
• C) k + 1
• D) 2k

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Definitions:

Net Present Value

The difference between the current value of cash inflows and the current value of cash outflows over a period of time; used to evaluate the profitability of an investment.

Internal Rate of Return

The interest rate that brings the net present value of all incoming and outgoing cash flows from an investment or project to a neutral point of zero.

Excel Spreadsheets

A software program used for data organization, analysis, and storage in tabular form.

Profitability Index

A financial tool used to evaluate the attractiveness of an investment, calculated as the present value of future cash flows divided by the initial investment.