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3 years ago

Which of the following is true about multicollinearity?

Business

1 answer:

Komok [63]3 years ago

3 0

Answer:

d. It is best measured using the statistic variance inflation factor (VIF).

Explanation:

Multicollinearity is an important issue in multiple regression model, having many independent/ explanatory variables. Multicollinearity is the situation in which two or more independent variables are highly correlated. It is problematic because it increases the standard error of independent variable coefficient & undermines its statistical significance

Variance Inflation Factor [VIF] is a check & corrective measure of multicollinearity.

VIF as a multicollinearity check : It quantifies the correlation between one explanatory variable with other explanatory variables.VIF = 1 implies there is no multicollinearity (correlation between independent variables); VIF upto 5 implies there is moderate multicollinearity (correlation between independent variables). VIF > 5 implies high multicollinearity (correlation between independent variables)
VIF as a multicollinearity correction : Calculating $Var (\beta j )$ = σ^2 / $[TSS j (1 - R^2j)]$ ; where TSS = total sum of square of variable j , σ^2 = j variance, R^2 j = R^2 from regressing all other independent variable on variable j

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Elanso [62]

Answer:

$61.29

Explanation:

Calculation for what Storico Co. Share of stock will sell today.

Since we have a stock that has a normal growth in which the dividend growth changes every year for the first four years. We can therefore find the price of the stock in Year 3 because the dividend growth rate is constant after the third dividend, which means the price of the stock in Year 3 will be the dividend we are going to use in Year 4, we shall then divide it by the required return less the constant dividend growth rate.

Therefore the price in Year 3 will be calculated as :

P3= $3.15(1.20)(1.15)(1.10)(1.05) / (.12 – .05)

P3= $5.020785/0.07

P3=$71.72

Let find the price of stock today using the PV of the first three dividends in addition with the PV of the stock price in Year 3:

Hence,

P0= $3.15(1.20)/(1.12) + $3.15(1.20)(1.15)/1.12^²+ $3.15(1.20)(1.15)(1.10)/1.12^³+ $71.72/1.12^³

P0=$3.78/1.12+$4.347/1.2544+$4.7817/1.404928+$71.72/1.404928

P0=$3.375+3.465+3.4035+$51.048

P0= $61.29

Therefore if the required return on the company’s stock is 12% what the share of stock will sell for today will be $61.29

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