An Academic Advisor Wants to Predict the Typical Starting Salary $$\hat { \beta } _ { 0 } = - 92040 \hat { \beta } 1 = 228 s = 3213 r ^ { 2 } = .66 r = .81 \mathrm { df } = 23 t = 6.67$$

question 55

Multiple Choice

An academic advisor wants to predict the typical starting salary of a graduate at a top business school using the GMAT score of the school as a predictor variable. A simple linear regression of SALARY versus GMAT using 25 data points is shown below. $$\hat { \beta } _ { 0 } = - 92040 \hat { \beta } 1 = 228 s = 3213 r ^ { 2 } = .66 r = .81 \mathrm { df } = 23 t = 6.67$$
Give a practical interpretation of $r ^ { 2 } = .66$ .

• A) \(66 \%\) of the sample variation in SALARY can be explained by using GMAT in a straight-line model.
• B) We can predict SALARY correctly \(66 \%\) of the time using GMAT in a straight-line model.
• C) We estimate SALARY to increase \(\$ .66\) for every 1-point increase in GMAT.
• D) We expect to predict SALARY to within \(2 [ \sqrt { .66 } ]\) of its true value using GMAT in a straight-line model.

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Definitions:

Effective Rate

The annual interest rate on a loan or investment, taking into account the effect of compounding, as opposed to the nominal rate which does not.

Annuity

A financial scheme that guarantees a set sequence of disbursements to an individual, frequently used to secure income in retirement.

GMAC Purchase Finance

Financial services related to buying, typically provided by General Motors Acceptance Corporation, focusing on auto loans and leases.

Cash Purchase Price

The amount of money required to buy a good, service, or asset without financing or credit.