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CFA Level 2 - Corporate Issuers - Cost of Capital: Advanced Topics
Intermediate
1/5
An analyst is evaluating a regression model that predicts consumer spending based on income, age, and education level. The model has an adjusted R-squared of 0.85 and all the independent variables are statistically significant at the 5% level. However, the analyst notices that the coefficient for age is negative. What does this suggest about the relationship between age and consumer spending, assuming all other factors are held constant?
a.
Holding all other predictors constant, as age increases, consumer spending tends to decrease.
b.
The negative coefficient for age suggests that the model is misspecified and should be re-evaluated with age removed as a predictor variable.
c.
There is a positive relationship between age and consumer spending after considering the effects of income and education.
Intermediate