Principles of Finance

# Multiple Choice

Principles of FinanceMultiple Choice

1 .
Two correlation coefficients are compared: Correlation Coefficient A is 0.83. Correlation Coefficient B is $-0.91$. Which correlation coefficient represents the stronger linear relationship?
1. Correlation Coefficient A
2. Correlation Coefficient B
3. equal strength
4. not enough information to determine
2 .
A data set containing 10 pairs of (x, y) data points is analyzed, and the correlation coefficient is calculated to be 0.58. Does this value of $r = 0.58$ indicate a significant or nonsignificant correlation?
1. significant
2. nonsignificant
3. neither significant nor nonsignificant
4. not enough information to determine
3 .
A linear regression model is developed, and for $x = 10$, the corresponding predicted y-value is 22.7. The actual observed value for $x = 10$ is $y = 31.3$. Is the residual for this data point positive, negative, or zero?
1. positive
2. negative
3. zero
4. not enough information to determine
4 .
A linear model is developed for the relationship between salary of finance professionals and years of experience. The data was collected based on years of experience ranging from 1 to 15. Assuming the correlation is significant, should the linear model be used to predict the salary for a person with 25 years of experience?
1. It is acceptable to predict the salary for a person with 25 years of experience.
2. A linear model cannot be created for these two variables.
3. It is not recommended to predict the salary for a person with 25 years of experience.
4. There is not enough information to determine the answer.
5 .
Which of the following is the best interpretation for the slope of the linear regression model?
1. The slope is the expected mean value of y when the x-variable is equal to zero.
2. The slope indicates the change in y for every unit increase in x.
3. The slope indicates the strength of the linear relationship between x and y.
4. The slope indicates the direction of the linear relationship between x and y.
6 .
A linear model is developed for the relationship between the annual salary of finance professionals and years of experience, and the following is the linear model $\widehat y=\text{55,000}+\text{1,000}x$. Which is the correct interpretation of this linear model?
1. $\text{slope} = \text{55,000},y \text {-intercept} = \text{1,000}$
2. $\text{slope} = 55,y \text {-intercept} = \text{1,000}$
3. $\text{slope} = \text{1,000},y \text {-intercept} = 55$
4. $\text{slope} = \text{1,000},y \text {-intercept} = \text{55,000}$
7 .
Which of the following is the correct sequence of steps needed to create a linear regression model?
1. create scatter plot, calculate correlation coefficient, check for significance, create linear model
2. create linear model, calculate correlation coefficient, check for significance, create scatter plot
3. check for significance, create linear model, calculate correlation coefficient, create scatter plot
4. create scatter plot, check for significance, create linear model, calculate correlation coefficient
8 .
A linear model is developed for the relationship between the annual salary of finance professionals and years of experience, and the linear model is: $\hat y = \text{55,000} + \text{1,000}x.$ The correlation is determined to be significant. Predict the salary for a finance professional with 7 years of experience.
1. $55,010 2.$60,000
3. $62,000 4.$125,000
9 .
As predictions are made for x-values that are further and further away from the mean of x, which is true about the prediction intervals for these x-values?
1. The prediction intervals will become smaller.
2. The prediction intervals will become larger.
3. The prediction intervals will remain the same.
4. There is not enough information to determine the answer.
10 .
Which of the following is the R command to calculate the correlation coefficient r?
1. correl
2. cor
3. slope
4. lm
11 .
Which of the following is the R command to calculate the slope and y-intercept for a linear regression model?
1. cor
2. slope
3. lm
4. intercept
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