For the Situation Above, Give a Practical Interpretation Of $\hat { \beta } _ { 0 } = - 92040$

question 43

Multiple Choice

For the situation above, give a practical interpretation of $\hat { \beta } _ { 0 } = - 92040$ .

• A) We estimate SALARY to decrease \(\$ 92,040\) for every 1 -point increase in GMAT.
• B) The value has no practical interpretation since a GMAT of 0 is nonsensical and outside the range of the sample data.
• C) We estimate the base SALARY of graduates of a top business school to be \(- \$ 92,040\).
• D) We expect to predict SALARY to within \(2 ( 92040 ) = \$ 184,080\) of its true value using GMAT in a straight-line model.

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Definitions:

CAPM

The Capital Asset Pricing Model is a formula that describes the relationship between the expected return of an investment and its risk, used to estimate a security's expected return based on its beta and the market's expected return.

Market Capitalization Rate

The Market Capitalization Rate refers to the expected rate of return on an investment or project, derived from the market price of a company's shares.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, helping in the calculation of the risk premium of various assets.

Expected Return

The calculated average of the possible returns for an investment, weighted by the likelihood of each outcome.