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

question 88

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,which of the following is the alternative hypothesis for testing the significance of Time?

• A) H_A: β₁ = 0
• B) H_A: β₁ = 0 and β₃ = 0
• C) H_A: β₁ ≠ 0
• D) H_A: β₁ ≠ 0 or β₃ ≠ 0

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Definitions:

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