On the Basis of Regression Equation $P = a + b \times S + e$

question 37

Multiple Choice

On the basis of regression Equation $P = a + b \times S + e$ we can decompose the variability of the dollar value of the asset,Var(P) ,into two separate components.

• A)Cov(P,S) = b² * Var(P) + Var(S)
• B)Var(P) = b² * Var(S) + Var(e)
• C)Cov(P,S) = b² * Cov(S,P) + Cov(S,e)
• D)Var(P) = b² *Var(S)
• E)None of the above

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Definitions:

Bond Interest Expense

The cost incurred by an issuer of bonds due to the interest payments made to bondholders.

Tax Deductible

Expenses that can be subtracted from gross income to reduce taxable income.

Contract Interest Rate

The pre-determined rate at which interest is calculated on a loan or financial agreement.

Face Value

The original cost of a bond or stock, as indicated on the certificate; it is also known as the nominal or par value.