Question #12 - Reading 1 Multiple Regression

Reading: Reading 1 Multiple Regression

PDF File: Reading 1 Multiple Regression.pdf

Page: 5

Status: Unattempted

Correct Answer: A

Shared Context

- Regarding Sophie's statement on multiple regression: A) only Statement 1 is correct. B) only Statement 2 is correct. C) both statements are correct.

Question

Based on the credit spread model, if an issuer gets included in the CDX index and assuming everything else the same, which of the following statements most accurately describes the model's forecast?

Answer Choices:

A. The credit spread on the firm’s issue would decrease by 10 bps

B. The credit spread on the firm’s issue will increase by 32 bps

C. The credit spread on the firm’s issue will decrease by 32 bps

Explanation

The coefficient on the index dummy variable is –0.32, and if the variable takes a value of 1 (inclusion in the index), the credit spread would decrease by 0.32%, or 32 bps.

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