The Major Shortcoming of the General Linear Probability Model Y

question 113

Multiple Choice

The major shortcoming of the general linear probability model y = β₀ + β₁x₁ + β₂x₂ + … + β_kx_k+ ε,is that the predicted values of y can be sometimes _______________________.

• A) greater than 0 and less than 1
• B) at least 0 and no more than 1
• C) less than 1 but more than 0
• D) less than 0 or greater than 1

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Definitions:

Residual Income

The amount of income that an individual or business has after all personal debts and expenses, including the cost capital, have been paid.

Financial Performance

An indicator of how well an entity can use assets from its primary mode of business and generate revenues.

Residual Income

A measure of performance that calculates the income an investment generates above the minimum required return.

Net Operating Income

A measure of a company's profitability, calculated by subtracting operating expenses from operating income.