Apply Principles of the Multiple Regression Model Building Process A) Model 2 Explains Less of the Variability in Average

question 1

Multiple Choice

Apply principles of the multiple regression model building process.
-A sample of 30 companies was randomly selected for a study investigating what
Factors affect the size of company bonuses. Data were collected on the number of
Employees at the company and whether or not the employees were unionized (1 = yes,
0 = no) . Multiple regression output is shown below for two competing models. Which
Of the following statements is true? $$\begin{array} { l } \underline{\text { Model 1: }} \\\text { Dependent Variable is Average Annual Bonus } \\\\\begin{array} { l r r r r } \text { Predictor } & \text { Coef } & \text { SE Coef } & \text { T } & \text { P } \\\text { Constant } & 347.9 & 872.2 & 0.40 & 0.693 \\\text { Employees } & 0.6547 & 0.1105 & 5.92 & 0.000 \\\text { Union } & 1259.5 & 605.8 & 2.08 & 0.047\end{array} \\\\S = 1631.56 \quad \mathrm { R } - \mathrm { Sq } = 62.48 \quad \mathrm { R } - \mathrm { Sq } ( \mathrm { adj } \mathrm { j } ) = 59.6\% \\\\\underline{ \text { Model 2: } } \\\text { Dependent Variable is Average Annual Bonus } \\\\\begin{array} { l r r r r } \text { Predictor } & \text { Coef } & \text { SE Coef } & \text { T } & \text { P } \\\text { Constant } & - 1241.0 & 982.3 & - 1.26 & 0.218 \\\text { Employees } & 0.8872 & 0.1318 & 6.73 & 0.000 \\\text { Union } & 5253 & 1579 & 3.33 & 0.003\end{array} \\\begin{array} { l l l l l } \text { Emp*Union } & - 0.05424 & 0.02012 & - 2.70 & 0.012\end{array} \\\\S = 1469.91 \quad \mathrm { R } - \mathrm { Sq } = 70.68 \quad \mathrm { R } - \mathrm { Sq } ( \mathrm { adj } ) = 67.2\% \\\end{array}$$

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Definitions:

Put Option

A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Exercise Price

The predetermined price at which the holder of an option can buy (in case of a call option) or sell (in case of a put option) the underlying asset.

Stock Price

The cost of purchasing a share of a company, reflecting the market's valuation of the company's future earnings potential.

Standardized Options

Options that have been standardized by an options exchange, detailing the specific terms such as expiration date and strike price.