THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION

question 152

Essay

THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
An economist is in the process of developing a model to predict the price of gold.She believes that the two most important variables are the price of a barrel of oil (x₁)and the interest rate (x₂).She proposes the model y = β₀ + β₁x₁ + β₂x₂ + β₃x₁x₃ + ε.A random sample of 20 daily observations was taken.The computer output is shown below.
THE REGRESSION EQUATION IS
y = 115.6 + 22.3x₁ + 14.7x₂ - 1.36x₁x₂

S = 20.9 R-Sq = 55.4%
ANALYSIS OF VARIANCE

-Suppose that a regression relationship is given by Y = β₀ + β₁X₁ + β₂X₂ + ε.If the simple linear regression of Y on X₁ is estimated from a sample of n observations,the resulting slope estimate will generally be biased for β₁.But if the sample correlation between X₁ and X₂ is 0,the slope will not be biased for β₁.
How does X₂ affect β₁ if the sample correlation between X₁ and X₂ is zero?

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Definitions:

Continuation

The process of extending or carrying on an activity without interruption.

Undiscounted Sum

The total of all future cash flows associated with an investment or project without adjusting them for their present value.

Discounted

The method of calculating the current value of a future sum of money or series of cash flows using a particular return rate.

Interest Expense

The financial charges a company bears for loaned money across a time frame.