Question #15
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 6
Status: Unattempted
Correct Answer: A
Question
Henry Hilton, CFA, is undertaking an analysis of the bicycle industry. He hypothesizes that bicycle sales (SALES) are a function of three factors: the population under 20 (POP), the level of disposable income (INCOME), and the number of dollars spent on advertising (ADV). All data are measured in millions of units. Hilton gathers data for the last 20 years and estimates the following equation (standard errors in parentheses): SALES = α + 0.004 POP + 1.031 INCOME + 2.002 ADV (0.005) (0.337) (2.312) The critical t-statistic for a 95% confidence level is 2.120. Which of the independent variables is statistically different from zero at the 95% confidence level?
Answer Choices:
A. INCOME and ADV
B. ADV only
C. INCOME only
Explanation
The calculated test statistic is coefficient/standard error. Hence, the t-stats are 0.8 for
POP, 3.059 for INCOME, and 0.866 for ADV. Since the t-stat for INCOME is the only one
greater than the critical t-value of 2.120, only INCOME is significantly different from zero.