A regression model below was developed to predict a firm’s Price-Earnings Ratio
ID: 3323598 • Letter: A
Question
A regression model below was developed to predict a firm’s Price-Earnings Ratio (PE) using Growth Rate, Profit Margin, and whether the firm is Green (1 = Yes, 0 = No). Which of the following is the correct interpretation for the regression coefficient of Green?
A) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 times higher than a firm that is not green with the same growth rate and profit margin.
B) The regression coefficient is not significantly different from zero.
C) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 higher than a firm that is not green with the same growth rate and profit margin.
D) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 times lower than a firm that is not green with the same growth rate and profit margin.
E) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 lower than a firm that is not green with the same growth rate and profit margin.
Explanation / Answer
The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 higher than a firm that is not green with the same growth rate and profit margin.
Option C is correct.
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