TABLE 16-14 a Contractor Developed a Multiplicative Time-Series Model to Forecast the Forecast

question 101

Multiple Choice

TABLE 16-14
A contractor developed a multiplicative time-series model to forecast the number of contracts in future quarters, using quarterly data on number of contracts during the 3-year period from 2008 to 2010. The following is the resulting regression equation:
ln Ŷ = 3.37 + 0.117 X - 0.083 Q₁ + 1.28 Q₂ + 0.617 Q₃
where Ŷ is the estimated number of contracts in a quarter
X is the coded quarterly value with X = 0 in the first quarter of 2008.
Q₁ is a dummy variable equal to 1 in the first quarter of a year and 0 otherwise.
Q₂ is a dummy variable equal to 1 in the second quarter of a year and 0 otherwise.
Q₃ is a dummy variable equal to 1 in the third quarter of a year and 0 otherwise.
-Referring to Table 16-14, the best interpretation of the coefficient of X (0.117) in the regression equation is

• A) the quarterly compound growth rate in contracts is around 30.92%.
• B) the annually compound growth rate in contracts is around 30.92%.
• C) the quarterly compound growth rate in contracts is around 11.7%.
• D) the annually compound growth rate in contracts is around 11.7%.

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Definitions:

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements and is used to evaluate the cost of funding projects via equity financing.

Dividend

A disbursement by a company to its shareholders, often from its profit reserves.

Growth Rate

The rate at which a company's earnings, revenue, or another financial metric increases over a specific period.

Cost of Preferred Stock

The required rate of return by investors for owning preferred stock in a company.