Topic 24: Hypothesis Tests and Confidence Intervals in Multiple

Regression
Test ID: 8450984

Question #1 of 21

Question ID: 438976

A dependent variable is regressed against three independent variables across 25 observations. The regression sum of squares
is 119.25, and the total sum of squares is 294.45. The following are the estimated coefficient values and standard errors of the
coefficients.

Coefficient Value Standard error

1

2.43

1.4200

3.21

1.5500

0.18

0.0818

For which of the coefficients can the hypothesis that they are equal to zero be rejected at the 0.05 level of significance?

A) 1 and 2 only.
B) 2 and 3 only.
C) 3 only.
D) 1, 2, and 3.

Question #2 of 21

Question ID: 438971

Consider the following estimated regression equation, with standard errors of the coefficients as indicated:
Salesi = 10.0 + 1.25 R&Di + 1.0 ADVi - 2.0 COMPi + 8.0 CAPi
where the standard error for R&D is 0.45, the standard error for ADV is 2.2, the standard error for COMP 0.63, and the standard
error for CAP is 2.5.

The equation was estimated over 40 companies. Using a 5 percent level of significance, what are the hypotheses and the calculated test
statistic to test whether the slope on R&D is different from 1.0?

A) H0: bR&D = 1 versus Ha: bR&D 1; t = 0.556.

B) H0: bR&D = 1 versus Ha: bR&D1; t = 2.778.
C) H0: bR&D 1 versus Ha: bR&D = 1; t = 0.556.
D) H0: bR&D 1 versus Ha: bR&D = 1; t = 2.778.

Question #3 of 21

Question ID: 438974

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David Black wants to test whether the estimated beta in a market model is equal to one. He collected a sample of 60 monthly returns on
a stock and estimated the regression of the stock's returns against those of the market. The estimated beta was 1.1, and the standard
error of the coefficient is equal to 0.4. What should Black conclude regarding the beta if he uses a 5% level of significance? The null
hypothesis that beta is:

A) equal to one is rejected.

B) equal to one cannot be rejected or accepted.
C) not equal to one cannot be rejected.
D) equal to one cannot be rejected.

Question #4 of 21

Question ID: 440959

In the multivariable regression model: Y = B0 + B1 Xli + B2 X2i + i, the formula for the standard errors of the estimated
coefficients includes the variance of i, which is represented by: 2. Since the term is:
A)

not known with certainty, the expression 2 is replaced with:

B) not known with certainty, the standard errors of the coefficients cannot be estimated.
C)

not known with certainty, the expression 2 is replaced with:

D) known with certainty, the standard errors of the coefficients are known with certainty.

Question #5 of 21

Question ID: 438993

Consider the following analysis of variance (ANOVA) table:

Source

Sum of squares Degrees of freedom

Mean square

Regression

20

20

Error

80

40

Total

100

41

The F-statistic for the test of the fit of the model is closest to:

A) 10.00.
B) 0.10.
C) 0.25.
D) 0.20.

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Questions #6-11 of 21
Autumn Voiku is attempting to forecast sales for Brookfield Farms based on a multiple regression model. Voiku has constructed
the following model:

sales = b 0 + (b1 CPI) + (b2 IP) + (b 3 GDP) + t

Where:
sales = $ change in sales (in 000's)
CPI = change in the consumer price index
IP = change in industrial production (millions)
GDP = change in GDP (millions)
All changes in variables are in percentage terms.
Voiku uses monthly data from the previous 180 months of sales data and for the independent variables. The model estimates
(with coefficient standard errors in parentheses) are:
sales = 10.2 + (4.6 CPI) + (5.2 IP) + (11.7 GDP)
(5.4) (3.5)

(5.9)

(6.8)

The sum of squared errors is 140.3 and the total sum of squares is 368.7.
Voiku calculates the unadjusted R2, the adjusted R2, and the standard error of estimate to be 0.592, 0.597, and 0.910,
respectively.
Voiku is concerned that one or more of the assumptions underlying multiple regression has been violated in her analysis. In a
conversation with Dave Grimbles, CFA, a colleague who is considered by many in the firm to be a quant specialist. Voiku says,
"It is my understanding that there are five assumptions of a multiple regression model:"
Assumption 1:

There is a linear relationship between the dependent and independent

Assumption 2:

The independent variables are not random, and there is no correlation between

variables.
any two of the independent variables.
Assumption 3:

The residual term is normally distributed with an expected value of zero.

Assumption 4:

The residuals are serially correlated.

Assumption 5:

The variance of the residuals is constant.

Grimbles agrees with Miller's assessment of the assumptions of multiple regression.

Voiku tests and fails to reject each of the following four null hypotheses at the 99% confidence interval:
Hypothesis 1:

The coefficient on GDP is negative.

Hypothesis 2:

The intercept term is equal to -4.

Hypothesis 3:

A 2.6% increase in the CPI will result in an increase in sales of more than
12.0%.

Hypothesis 4:

A 1% increase in industrial production will result in a 1% decrease in sales.

Figure 1: Partial table of the Student's t-distribution (One-tailed probabilities)

df p = 0.10 p = 0.05 p = 0.025 p = 0.01 p = 0.005

170 1.287

1.654

1.974

2.348

2.605

176 1.286

1.654

1.974

2.348

2.604

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180 1.286

1.653

1.973

2.347

2.603

Figure 2: Partial F-Table critical values for right-hand tail area equal to 0.05
df1 = 1 df1 = 3 df1 = 5
df2 = 170 3.90

2.66

2.27

df2 = 176 3.89

2.66

2.27

df2 = 180 3.89

2.65

2.26

Figure 3: Partial F-Table critical values for right-hand tail area equal to 0.025
df1 = 1 df1 = 3 df1 = 5
df2 = 170 5.11

3.19

2.64

df2 = 176 5.11

3.19

2.64

df2 = 180 5.11

3.19

2.64

Question #6 of 21

Question ID: 438986

Concerning the assumptions of multiple regression, Grimbles is:

A) incorrect to agree with Voiku's list of assumptions because one of the assumptions is stated
incorrectly.
B) correct to agree with Voiku's statement of the assumptions.
C) incorrect to agree with Voiku's list of assumptions because three of the assumptions are stated
incorrectly.
D) incorrect to agree with Voiku's list of assumptions because two of the assumptions are stated
incorrectly.

Question #7 of 21

Question ID: 438987

For which of the four hypotheses did Voiku incorrectly fail to reject the null, based on the data given in the problem?
A) Hypothesis 2.
B) Hypothesis 3.
C) Hypothesis 1.
D) Hypothesis 4.

Question #8 of 21

Question ID: 438988

The most appropriate decision with regard to the F-statistic for testing the null hypothesis that all of the independent variables are
simultaneously equal to zero at the 5 percent significance level is to:
A) reject the null hypothesis because the F-statistic is larger than the critical F-value of 2.66.
B) reject the null hypothesis because the F-statistic is larger than the critical F-value of 3.19.
C) fail to reject the null hypothesis because the F-statistic is smaller than the critical F-value of 3.19.
D) fail to reject the null hypothesis because the F-statistic is smaller than the critical F-value of 2.66.

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Question #9 of 21

Question ID: 438989

Regarding Voiku's calculations of R2 and the standard error of estimate, she is:
A) correct in her calculation of the unadjusted R2 but incorrect in her calculation of the standard error of
estimate.
B) incorrect in her calculation of the unadjusted R2 but correct in her calculation of the standard error of
estimate.
C) correct in her calculation of both the unadjusted R2 and the standard error of estimate.
D) incorrect in her calculation of both the unadjusted R2 and the standard error of estimate.

Question #10 of 21

Question ID: 459978

The multiple regression, as specified, most likely suffers from:

A) multicollinearity.
B) serial correlation of the error terms.
C) heteroskedasticity.
D) omitted variables.

Question #11 of 21

Question ID: 438991

A 90 percent confidence interval for the coefficient on GDP is:

A) 0.5 to 22.9.
B) -1.9 to 19.6.
C) -4.4 to 20.8.
D) -1.5 to 20.0.

Questions #12-13 of 21
You have been asked to forecast the level of operating profit for a proposed new branch of a tire store. This forecast is one component
in forecasting operating profit for the entire company for the next fiscal year. You decide to conduct multiple regression analysis using
"branch store operating profit" as the dependent variable and three independent variables. The three independent variables are
"population within 5 miles of the branch," "operating hours per week," and "square footage of the facility." You used data on the
company's existing 23 branches to develop the model (n=23).

Regression of Operating Profit on Population, Operating Hours, and Square

Footage

Dependent Variable
Independent Variables
Intercept
Population within 5 miles (X1)
Operating hours per week (X2)

Operating Profit (Y)

Coefficient Estimate

t-value

103,886

2.740

4.372

2.133

214.856

0.258

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Square footage of facility (X3)

56.767

R2

0.983

Adjusted R2

0.980

F-Statistic

360.404

Standard error of the model

19,181

2.643

Correlation Matrix
Y

X1

X2

X3

1.00

X1

0.99

1.00

X2

0.69

0.67

1.00

X3

0.99

0.99

.71

1.00

Degrees of Freedom

.20

.10

.05

.02

.01

1.638

2.353

3.182

4.541

5.841

19

1.328

1.729

2.093

2.539

2.861

23

1.319

1.714

2.069

2.50

2.807

Question #12 of 21

Question ID: 438978

You want to evaluate the statistical significance of the slope coefficient of an independent variable used in this regression model. For 95
percent confidence, you should compare the t-statistic to the critical value from a t-table using:

A) 19 degrees of freedom and 0.05 level of significance for a two-tailed test.

B) 24 degrees of freedom and 0.05 level of significance for a two-tailed test.
C) 24 degrees of freedom and 0.05 level of significance for a one-tailed test.
D) 19 degrees of freedom and 0.05 level of significance for a one-tailed test.

Question #13 of 21

Question ID: 438979

The probability of finding a value of t for variable X1 that is as large or larger than |2.133| when the null hypothesis is true is:

A) between 2% and 5%.

B) between 1% and 2%.
C) between 10% and 20%.
D) between 5% and 10%.

Question #14 of 21

Question ID: 438973

Seventy-two monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the
Wilshire 5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if
the return is from a month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half

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of the year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also
equals 0. The following are the estimated coefficient values and standard errors of the coefficients.

Coefficient

Value

Standard error

Market

1.43000

0.319000

Dummy 1

0.00162

0.000675

Dummy 2

0.00132

0.000733

What is the p-value for a test of the hypothesis that the new manager outperformed the old manager?

A) Lower than 0.01.

B) Between 0.01 and 0.05.
C) Between 0.05 and 0.10.
D) Greater than 0.10.

Questions #15-16 of 21
In a recent analysis of salaries (in $1,000) of financial analysts, a regression of salaries on education, experience, and gender is
run. Gender equals one for men and zero for women. The regression results from a sample of 230 financial analysts are
presented below, with t-statistics in parenthesis.
Salaries = 34.98 + 1.2 Education + 0.5 Experience + 6.3 Gender
(29.11)

(8.93)

(2.98)

(1.58)

Question #15 of 21

Question ID: 438982

What is the expected salary (in $1,000) of a woman with 16 years of education and 10 years of experience?

A) 54.98.
B) 61.28.
C) 59.18.
D) 65.48.

Question #16 of 21

Question ID: 438983

Holding everything else constant, do men get paid more than women? Use a 5% level of significance. No, since the t-value:
A) exceeds the critical value of 1.96.
B) exceeds the critical value of 1.65.
C) does not exceed the critical value of 1.96.
D) does not exceed the critical value of 1.65.

Question #17 of 21

Question ID: 438972

7 of 10

63 monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the Wilshire
5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if the return
is from a month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half of the
year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also equals 0.
The following are the estimated coefficient values and standard errors of the coefficients.

Coefficient Value Standard error

Market

1.43000

0.319000

Dummy 1 0.00162

0.000675

Dummy 2 0.00132

0.000733

What is the p-value for a test of the hypothesis that performance in the second half of the year is different than performance in
the first half of the year?
A) Between 0.05 and 0.10.
B) Between 0.01 and 0.05.
C) Greater than 0.10.
D) Lower than 0.01.

Question #18 of 21

Question ID: 438994

When utilizing a proxy for one or more independent variables in a multiple regression model, which of the following errors is most
likely to occur?
A) Model misspecification.
B) Serial correlation.
C) Multicollinearity.
D) Heteroskedasticity.

Question #19 of 21

Question ID: 438980

An analyst is investigating the hypothesis that the beta of a fund is equal to one. The analyst takes 60 monthly returns for the
fund and regresses them against the Wilshire 5000. The test statistic is 1.97 and the p-value is 0.05. Which of the following is
CORRECT?

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A) For a sample of 100 beta values, the expected number of times beta would be equal to 1 is less than
or equal to 5%.
B) The proportion of occurrences when the absolute value of the test statistic will be higher when beta
is equal to 1 than when beta is not equal to 1 is less than or equal to 5%.
C) If beta is equal to 1, the likelihood that the absolute value of the test statistic is equal to 1.97 is less
than or equal to 5%.
D) If beta is equal to 1, the likelihood that the absolute value of the test statistic would be greater than
or equal to 1.97 is 5%.

Question #20 of 21

Question ID: 438992

A dependent variable is regressed against three independent variables across 25 observations. The regression sum of squares is
119.25, and the total sum of squares is 294.45. The following are the estimated coefficient values and standard errors of the coefficients.
Coefficient Value Standard error
1

2.43

1.4200

3.21

1.5500

0.18

0.0818

What is the p-value for the test of the hypothesis that all three of the coefficients are equal to zero?

A) Greater than 0.10.

B) lower than 0.025.
C) Between 0.05 and 0.10.
D) Between 0.025 and 0.05.

Question #21 of 21

Question ID: 438975

Seventy-two monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the
Wilshire 5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if
the return is from a month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half
of the year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also
equals zero. The following are the estimated coefficient values and standard errors of the coefficients.

Coefficient

Value

Standard error

Market

1.43000

0.319000

Dummy 1

0.00162

0.000675

Dummy 2

0.00132

0.000733

What is the p-value for a test of the hypothesis that the beta of the fund is greater than 1?

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A) Between 0.05 and 0.10.

B) Greater than 0.10.
C) Lower than 0.01.
D) Between 0.01 and 0.05.

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