In the Binary Dependent Variable Model, a Predicted Value of 0.6

question 2

Multiple Choice

In the binary dependent variable model, a predicted value of 0.6 means that

• A)the most likely value the dependent variable will take on is 60 percent.
• B)given the values for the explanatory variables, there is a 60 percent probability that the dependent variable will equal one.
• C)the model makes little sense, since the dependent variable can only be 0 or 1.
• D)given the values for the explanatory variables, there is a 40 percent probability that the dependent variable will equal one.

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Definitions:

Dollar-Weighted Return

A method of calculating an investment's return that accounts for the timing and amount of cash flows into the investment.

Arithmetic Average

The simple mean calculated by adding a set of values and then dividing by the number of values.

Geometric Average

The nth root of the product of n numbers, used to calculate average rates of return over time for investments that undergo compounding.

Compounding

The process where an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.