Y = 10 + 0.51X1 + 0.45X2 The coefficient of determination is 0.96
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
A manager uses regression to express sales as a function of advertising expenditures (X1), and per capita income (X2) in your sales area. The following multiple linear regression equation is developed:
Y = 10 + 0.51X1 + 0.45X2
The coefficient of determination is 0.96
Determine which of the following conclusions is valid regarding the coefficient of determination:
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The coefficient of determination should always be greater than one.
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More analysis is needed. The coefficient of determination leaves much unexplained.
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The coefficient of determination is positive because the constant term is positive.
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The regression line fits the data used in the sample very well. There is a strong indication of the relationship of the two variables with sales.
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