Reading 11- LOS G : Q1 monthly, simple, style

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1.A sample of 200 monthly observations is used to run a simple linear regression:  Returns = b₀ + b₁Leverage + u.   The t-value for the regression coefficient of leverage is calculated as t = – 1.09.  A 5 percent level of significance is used to test whether leverage has a significant influence on returns.  The correct decision is to:

A)   reject the null hypothesis and conclude that leverage does not significantly explain returns.

B)   do not reject the null hypothesis and conclude that leverage significantly explains returns.

C)   do not reject the null hypothesis and conclude that leverage does not significantly explain returns.

D)   reject the null hypothesis and conclude that leverage significantly explains returns.

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The correct answer was C)

Do not reject the null since |–1.09|<1.96(critical t-value).