Which of the Following Regression Models Does Not Include an Interaction

question 38

Multiple Choice

Which of the following regression models does not include an interaction variable?

• A) y = β₀ + β₁x + β₂xd + ε
• B) y = β₀ + β₁x + β₂d + ε
• C) y = β₀ + β₁d + β₂xd + ε
• D) y = β₀ + β₁x + β₂d + β₃xd + ε

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Definitions:

Sharpe Measure

A metric used to assess the risk-adjusted return of an investment, comparing its excess returns to the volatility experienced.

Residual Standard Deviation

A statistical measure of the amount of variance in investment returns not explained by the beta in the Capital Asset Pricing Model (CAPM).

Geometric Average Return

Is the average rate of return of a set of values calculated using the products of the terms.

Arithmetic Return

The simple average of periodic returns of an investment over a specified time frame.