Use the Following to Answer Questions

question 80

Multiple Choice

Use the following to answer questions:
Scenario: Diversification
Morris is considering investing $10,000 in a sunglass company or a rain poncho company. If it is a rainy year and he invests only in the sunglass company, he will lose $5,000. However, if it is a rainy year and he invests only in the rain poncho company, he will earn $10,000. If it is a sunny year and he invests only in the sunglass company, he will earn $10,000; if he invests only in the rain poncho company, he will lose $5,000 in a sunny year. There is a 50% chance of a sunny year and a 50% chance of a rainy year.
-(Scenario: Diversification) Look at the scenario Diversification. If Morris invests all of his money in the rain poncho company, what is his expected gain or loss?

• A) a loss of $2,500
• B) to break even
• C) a gain of $2,500
• D) a gain of $10,000

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Definitions:

Sum of Squares for Regression

The sum of squares for regression quantifies the variation explained by the regression model, comparing the fitted values against the mean of the dependent variable.

SSR

Stands for Sum of Squares due to Regression, which measures the variation explained by the regression line in the context of statistical analysis.

Simple Linear Regression

A statistical method for examining the linear relationship between two quantitative variables; one variable is used to predict the outcome of another.

Probabilistic Model Equation

A mathematical representation of a statistical model that incorporates randomness and accounts for the probability of various outcomes.