A Sample of 200 Monthly Observations Is Used to Run

question 65

Multiple Choice

A sample of 200 monthly observations is used to run a simple linear regression: Returns = β₀ + β₁ Leverage + ε.A five percent level of significance is used to study if leverage has a significant influence on returns.The value of the test statistic for the regression coefficient of Leverage is calculated as ,with an associated p-value of 0.2770.The correct decision is to:

• A)Reject the null hypothesis and conclude that leverage significantly explains returns.
• B)Reject the null hypothesis and conclude that leverage does not significantly explain returns.
• C)Do not reject the null hypothesis and conclude that leverage does not significantly explain returns.
• D)Do not reject the null hypothesis and conclude that leverage significantly explains returns.

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Definitions:

NPV

Net Present Value is a financial metric that calculates the present value of all net cash flows (positive and negative) from an investment, discounted back at the investor's required rate of return.

Required Return

The minimum expected return an investor demands for a particular investment, reflecting the investment's risk.

NPV

An alternative measure for Net Present Value, reflecting the difference in the present value of cash inflows and outflows over a period of time.

Required Rate

The minimum return that investors expect to earn from their investment, essentially setting a benchmark for the performance of an investment.