You Have Obtained a Sample of 14,925 Individuals from the Current

question 19

Essay

You have obtained a sample of 14,925 individuals from the Current Population Survey (CPS)and are interested in the relationship between average hourly earnings and years of education.The regression yields the following result: = -4.58 + 1.71×educ ,R2 = 0.182,SER = 9.30
where ahe and educ are measured in dollars and years respectively.
a.Interpret the coefficients and the regression R2.
b.Is the effect of education on earnings large?
c.Why should education matter in the determination of earnings? Do the results suggest that there is a guarantee for average hourly earnings to rise for everyone as they receive an additional year of education? Do you think that the relationship between education and average hourly earnings is linear?
d.The average years of education in this sample is 13.5 years.What is mean of average hourly earnings in the sample?
e.Interpret the measure SER.What is its unit of measurement.

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Definitions:

Beta

A measure of the volatility of a stock or portfolio compared to the volatility of the overall market.

Dividend Growth Model

A method of valuing a company's stock price by using predicted dividends and discounting them back to present value.

Cost of Equity

The return that investors expect for investing in a company's equity, often calculated using models like the Capital Asset Pricing Model (CAPM).

Market Risk Premium

Slope of the Security Market Line; the difference between the expected return on a market portfolio and the risk-free rate.