TABLE 13-13 An Econometrician Is Interested in Evaluating the Relationship of Demand

question 61

Short Answer

TABLE 13-13
An econometrician is interested in evaluating the relationship of demand for building materials to mortgage rates in Los Angeles and San Francisco. He believes that the appropriate model is
Y = 10 + 5X1 + 8X2
where X1 = mortgage rate in %
X2 = 1 if SF, 0 if LA
Y = demand in $100 per capita
-Referring to Table 13-13, the predicted demand in Los Angeles when the mortgage rate is 8% is ________ per capita.

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Definitions:

Risk Averse

A term describing investors or consumers who prefer lower risk and are willing to accept lower returns in exchange for increased certainty or safety.

Market Risk Premium

The additional return an investor expects to receive from holding a risky market portfolio instead of risk-free assets.

SML

Stands for Security Market Line, a graphical representation of the expected return of investments at different levels of systematic, or market, risk.

Beta

An indicator of how much a stock's price is expected to fluctuate, compared to fluctuations in the overall stock market.