A Regression Equation That Predicts the Price of Homes in Thousands

question 152

Multiple Choice

A regression equation that predicts the price of homes in thousands of dollars is _t = 24.6 + 0.055x₁ - 3.6x₂,where x₂ is a dummy variable that represents whether the house in on a busy street or not.Here x₂ = 1 means the house is on a busy street and x₂ = 0 means it is not.Based on this information,which of the following statements is true?

• A)On average,homes that are on busy streets are worth $3600 less than homes that are not on busy streets.
• B)On average,homes that are on busy streets are worth $3.6 less than homes that are not on busy streets.
• C)On average,homes that are on busy streets are worth $3600 more than homes that are not on busy streets.
• D)On average,homes that are on busy streets are worth $3.6 more than homes that are not on busy streets.

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Definitions:

Dividend Payout

The portion of net income a firm pays out to its shareholders as dividends.

Leverage

The use of borrowed funds to increase one's investment capacity and potentially increase the rate of return on equity.

Interest Rate

The percentage charged on a loan or paid on deposits, representing the cost of borrowing or the income from lending.

Pre-Tax Cost

The expense or cost associated with an activity or asset before taxes are deducted.