When a Scatter Chart of Data Shows a Nonlinear Relationship

question 6

Multiple Choice

When a scatter chart of data shows a nonlinear relationship, the nonlinear model can be expressed as:

• A) Y = β₀ + β₁X + β₂X² + ε
• B) Y = β₀ + β₁X + (β₂X)² + ε
• C) Y = β₀ + β₁X + β₂X
• D) Y = β0 + β₁X² + β₂X² + ε

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Definitions:

Principal Balance

The outstanding amount of a loan or mortgage that remains to be paid, not including interest.

Personal Loan

A type of unsecured loan provided by financial institutions based on the borrower’s creditworthiness without collateral.

Perpetuity

A type of annuity that continues indefinitely, often used in finance to model consistent payments or cash flows without an end date.

Compounding Period

The frequency with which interest is added to the principal balance of an investment, which can be annually, semiannually, quarterly, etc.