MGT 6203 Homework 1 [Latest 2020] Questions with Solutions.

Homework 1 - Solutions Question 1 Choose the correct statement regarding the sum of residuals calculated using Ordinary Least Squares (OLS). A. The sum of residuals will always be nonzero whatever the form of the linear regression as long as you are using OLS to estimate the coefficients. B. The sum of residuals will always be equal to zero if you include intercept term in your model and you are using OLS to estimate the coefficients C. The sum of residuals may or may not be zero when using OLS and the R software makes mathematical adjustments to make it zero. D. The sum of residuals may or may not be zero when using OLS and the R software makes no mathematical adjustments because it is not needed. Sol: B Explanation: The intercept is the catchall term that takes within itself anything that is not being predicted/accounted for by the independent variables. Question 2 Choose the correct statement regarding the error terms in the assumption of Ordinary Least Squares (OLS). A. The error terms are normally distributed with a constant non-zero mean and constant Variance B. The variance of error terms may or may not be constant as long as the terms are normally distributed with mean equal to zero C. The error terms follow lognormal distribution with mean equal to zero and constant variance D. The error terms are normally distributed with mean equal to zero and a constant variance Sol: D Explanation: The OLS model assumes that the error terms (residuals) are normally distributed with mean equals to zero and constant variance (property of homoscedasticity of variances)