Which of the Following Statements Is True

question 6

Multiple Choice

Which of the following statements is true?

• A)To carry out OLS estimation, it is necessary that the error terms should be correlated with the explanatory variables.
• B)Measurement error and simultaneity are potential sources of endogeneity.
• C)While entering data for a regression analysis, qualitative explanatory variables should be assigned numerical values.
• D)AR models are best suited for ordered responses.

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Definitions:

Net Present Value

A financial measure that calculates the present value of net cash flows (inflows minus outflows) from an investment, discounting future cash flows to the present.

Internal Rate of Return

A metric used in financial analysis to estimate the profitability of potential investments, calculated as the rate that makes the net present value of cash flows equal to zero.

Capital Expenditure Decision Process

The process of making decisions related to the acquisition of capital assets, taking into consideration their costs, benefits, and risks.

Profitability Index

A financial metric that compares the present value of future cash flows from an investment to its initial cost, used to evaluate investment attractiveness.