A Researcher Wants to Examine How the Remaining Balance on $100,000

question 107

Multiple Choice

A researcher wants to examine how the remaining balance on $100,000 loans taken 10 to 20 years ago depends on whether the loan was a prime or subprime loan.He collected a sample of 25 prime loans and 25 subprime loans and recorded the data in the following variables: Balance = the remaining amount of loan to be paid off (in $) ,
Time = the time elapsed from taking the loan,
Prime = a dummy variable assuming 1 for prime loans,and 0 for subprime 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 in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Using Model B,what is the value of the test statistic for testing the joint significance of the variable Time and the interaction variable Time × Prime?

• A) −0.64
• B) −5.36
• C) 2.03
• D) 2.74

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Definitions:

UCC

Uniform Commercial Code, a set of laws that govern commercial transactions in the United States.

Common Law

A legal system based on customs and court rulings, as opposed to statutory laws enacted by a legislative body.

Predominant Purpose

The main intent or objective behind a contract or transaction, often used to interpret the nature of the agreement.

Auto-parts Manager

A professional responsible for overseeing the operations and inventory of an auto-parts store or department.