In the Model Ln(y) = β₀ + β₁ Ln(x)

question 108

Multiple Choice

In the model ln(y) = β₀ + β₁ ln(x) + ε, the coefficient β₁ is the approximate ________.

• A) change in E(y) when x increases by one unit
• B) percentage change in E(y) when x increases by 1%
• C) percentage change in E(y) when x increases by one unit
• D) change in E(y) when x increases by 1%

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Definitions:

Optimal Risky Portfolio

A portfolio composition that offers the highest expected return for a given level of risk or the lowest risk for a given level of expected return.

Risk-Free Rate

The rate of return on an investment with zero risk, typically represented by government bonds.

Expected Return

The average return an investor anticipates receiving from an investment, taking into account all possible outcomes.

Risk-Free Rate

The expected yield from an investment that is considered free from the risk of financial loss, often exemplified by the returns on government bonds.