A Researcher Has Developed the Following Regression Equation to Predict

question 24

Multiple Choice

A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units, = 40 + 0.15Size + 50View, where Price is the price of a unit (in $1,000s) , Size is the square footage (in sq. feet) , and View is a dummy variable taking on 1 for an ocean view unit and 0 for a bay view unit. Which of the following is the difference in predicted prices of the ocean view and bay view units with the same square footage?

• A) $315,000
• B) $50,000
• C) $265,000
• D) $40,000

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Definitions:

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in capital budgeting to evaluate potential investments.

After-tax Cost

The cost of an investment or expense after deducting the tax advantages, reflecting the actual financial impact on an individual or company.

Coupon Bonds

Bonds that pay the holder a fixed interest rate (the coupon) over a specified period, typically until maturity when the principal, or face value, is repaid.

Market Yield

The rate of return anticipated on a bond if it is held until the maturity date, factoring in its current price, interest payments, and term length.