Consider the Following Regression Equation

question 15

Multiple Choice

Consider the following regression equation: .Which of the following indicates a functional form misspecification in E(y|x) ?

• A)Ordinary Least Squares estimates equal Weighted Least Squares estimates.
• B)Ordinary Least Squares estimates exceed Weighted Least Squares estimates by a small magnitude.
• C)Weighted Least Squares estimates exceed Ordinary Least Squares estimates by a small magnitude.
• D)Ordinary Least Square estimates are positive while Weighted Least Squares estimates are negative.

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Definitions:

Market Rates

Refers to the current interest rate or price available in the marketplace for financial instruments or commodities.

Floating-rate Debt

Floating-rate Debt refers to loans or bonds with a variable interest rate, which adjusts periodically based on a benchmark interest rate or index.

LIBOR

The London Interbank Offered Rate, which is a benchmark rate that some of the world’s leading banks charge each other for short-term loans.

Interest Expense

The cost incurred by an entity for borrowed funds over a period, including loans, bonds, or credit lines.