Which of the Following Is True

question 1

Multiple Choice

Which of the following is true?

• A)A functional form misspecification can occur if the level of a variable is used when the logarithm is more appropriate.
• B)A functional form misspecification occurs only if a key variable is uncorrelated with the error term.
• C)A functional form misspecification does not lead to biasedness in the ordinary least squares estimators.
• D)A functional form misspecification does not lead to inconsistency in the ordinary least squares estimators.

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Definitions:

Cost of Equity

The return that investors expect for investing in a company's equity, considering the risk of the investment.

Retained Earnings

The portion of a company's profits that is kept or retained for reinvestment in the business, rather than being paid out as dividends.

Retained Earnings

Portion of a company's profits that is kept or retained within the company, rather than paid out to shareholders as dividends, for reinvestment in the business or to pay off debt.

Opportunity Cost Principle

The opportunity cost principle denotes the value of the best alternative foregone when a decision is made to pursue a particular action.