What Is the Relationship Between Diamond Price and Carat Size

question 32

Multiple Choice

What is the relationship between diamond price and carat size? 307 diamonds were sampled and a straight-line relationship was hypothesized between y = diamond price (in dollars) and x = size of the diamond (in carats) . The simple linear regression for the analysis is shown below: Least Squares Linear Regression of PRICE Interpret the estimated slope of the regression line.

• A) For every 1-carat increase in the size of a diamond, we estimate that the price of the diamond will increase by $11,598.90.
• B) For every 1-carat increase in the size of a diamond, we estimate that the price of the diamond will decrease by $2298.36.
• C) For every $1 decrease in the price of the diamond, we estimate that the size of the diamond will increase by 11,598.9 carats.
• D) For every 2298.36-carat decrease in the size of a diamond, we estimate that the price of the diamond will increase by $11,598.90.

---

Definitions:

Market Risk Premium

The supplementary income expected by an investor from maintaining a risky market portfolio rather than holding risk-free investments.

Required Return

The minimum return that an investor expects to achieve on an investment, considering the risk associated with it.

Risk-free Rate

The theoretical return of an investment with zero risk, often represented by the yield on government securities.

Beta

Beta is a measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher volatility, while a beta less than 1 indicates lower volatility.