Exhibit 17

question 46

Multiple Choice

Exhibit 17.4.A researcher wants to examine how the remaining balance on $100,000 loans taken 10-20 years ago depends on whether the loan was a prime or sub-prime loan.He collected a sample of 25 prime loans and 25 sub-prime loans and records the data in the following variables: Balance = the remaining amount of loan to be paid off (in dollars) ,
Time = the time elapsed from taking the loan,
Prime = a dummy variable assuming 1 for prime loans,and 0 for sub-prime loans.
The regression results obtained for the models:
Model A: Balance = β₀ + β₁Prime + ε
Model B: Balance = β₀ + β₁Time + β₂Prime + β₃Time × Prime + ε
Model C: Balance = β₀ + β₁Prime + β₂Time × Prime + ε,
Are summarized below. Note.The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Refer to Exhibit 17.4.Which of the three models would you choose to make the predictions of the remaining loan balance?

• A)Model A
• B)Model B
• C)Model C
• D)Any model

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Definitions:

Inventory Cost

The total cost associated with buying and preparing items for sale, including purchase prices, shipping, handling, and storage.

Perpetual Inventory Account

A method of recording inventory that updates inventory records in real-time with every transaction, sale, or purchase.

FIFO

An inventory valuation method (First In, First Out) where the costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold.

LIFO

Last In, First Out, an inventory valuation method where the most recently produced or purchased items are recorded as sold first.