BINARY CHOICE MODELS (LPM). For this and the next 4 questions: Using 30 observations, the regression output, below, is obtained from estimating the following linear probability model (LPM): Y = B0 + B1X + e. Y = 1, if firm pays dividend, 0 otherwise; X = Capital expenditure. Suppose that P1 = P(Y = 0) and P2 = P(Y=1).Which of the following is a correct expression for the expected value of Y?

Question 12 options:

1)

B0 + B1X + e

2)

P1

3)

P2

4)

P2 + e