Financial Risk Manager Part 1
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Q.396 A graduate school constructs a linear regression model to estimate the effect of increased study hours on the average performance of students in a test. The slope coefficient is found to be equal to 2. What does this mean?
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A
The average score when the number of study hours is zero is 2.
B
The predicted score when the number of study hours is zero is 2%.
C
For every one unit change in the number of study hours, the model predicts that the average score will change by 2 units.
D
For every one unit change in the number of study hours, the model predicts that the average score will change by 2%.
Explanation:
Explanation
The slope coefficient in a linear regression model represents the expected change in the dependent variable for a 1-unit change in the independent variable.
Key Points:
- Slope coefficient = 2 means that for every 1-unit increase in study hours, the average test score is predicted to increase by 2 units
- This is the rate of change or the marginal effect of the independent variable on the dependent variable
- The intercept coefficient (not given here) would represent the predicted score when study hours = 0
- Option A describes the intercept, not the slope
- Option B is incorrect because it mentions percentages, but the coefficient is in units
- Option D is incorrect for the same reason - the coefficient represents unit changes, not percentage changes
In simple terms: If a student studies 1 more hour, their test score is predicted to increase by 2 points on average.
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