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Assignment Week 9-Questions

The document presents 4 problems involving linear regression analyses. Problem 1 estimates a model of crop yield and provides coefficients, standard errors, and test statistics. It asks to predict values and calculate standard deviations based on the model. Problem 2 estimates a model of mutual fund returns based on turnover and expenses, and asks to predict returns, interpret coefficients, and calculate standard errors and coefficients of determination. Problem 3 estimates a CAPM model for Pfizer returns and asks to conduct hypothesis tests on the beta coefficient and abnormal returns. Problem 4 estimates attendance based on amusement park prices, and asks to calculate point and interval estimates of attendance when price is $80.

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Retno Ajeng Anissa Widiatri
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206 views

Assignment Week 9-Questions

The document presents 4 problems involving linear regression analyses. Problem 1 estimates a model of crop yield and provides coefficients, standard errors, and test statistics. It asks to predict values and calculate standard deviations based on the model. Problem 2 estimates a model of mutual fund returns based on turnover and expenses, and asks to predict returns, interpret coefficients, and calculate standard errors and coefficients of determination. Problem 3 estimates a CAPM model for Pfizer returns and asks to conduct hypothesis tests on the beta coefficient and abnormal returns. Problem 4 estimates attendance based on amusement park prices, and asks to calculate point and interval estimates of attendance when price is $80.

Uploaded by

Retno Ajeng Anissa Widiatri
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem 1

An analyst examines the effect that various variables have on crop yield. He estimates the
following model: = b0 + b1x1 + b2x2 + b3x3 + ε, where y is the average yield in bushels per
acre, x1 is the amount of summer rainfall, x2 is the average daily use in machine hours of tractors
on the farm, and x3 is the amount of fertilizer used per acre. A portion of the regression results is
shown in the accompanying table.

df SS MS F
Regression 3 12,000 4000 10
Residual 6 2,400 400
Total 9 14,400
Coefficients Standard Error t-stat p-value
Intercept 1.6 1 1.6 0.1232
x1 7.5 2.5 3 0.0064
x2 6 4 1.5 0.1472
x3 1 0.5 2 0.0574

a. Predict the crop yield per acre if x1 is 5, x2 is 4, and x3 is the 0.5.

b. Calculate the standard deviation of the difference between the actual crop yield and the
estimate of the crop yield.

c. How much of the variation in crop yield is unexplained by the model?

Problem 2
An investment analyst wants to examine the relationship between a mutual fund's return, its
turnover rate, and its expense ratio. She randomly selects 10 mutual funds and estimates:
Return = β0 + β1Turnover + β2Expense + ε, where Return is the average five-year return ,
Turnover is the annual holdings turnover (in %), Expense is the annual expense ratio (in %), and
ε is the random error component. A portion of the regression results is shown in the
accompanying table.

df SS MS F
Regression 2 93.33 46.67 4.90
Residual 7 66.69 9.53
Total 9 160.02
Coefficients Standard Error t-stat p-value
Intercept 30.60 4.30 7.12 0.000
Turnover 0.13 0.06 2.23 0.061
Expense 0.90 4.08 0.22 0.831

a. Predict the return for a mutual fund that has an annual holdings turnover of 60% and an annual
expense ratio of 1.5%.

b. Interpret the slope coefficient for the variable Expense.

c. Calculate the standard error of the estimate.

d. Calculate and interpret the coefficient of determination.

Problem 3
Pfizer Inc. is the world's largest research-based pharmaceutical company. Monthly data for
Pfizer's risk-adjusted return and the risk-adjusted market return are collected for a five-year
period (n = 60). The accompanying table shows the regression results when estimating the
Capital Asset Pricing Model (CAPM) model for Pfizer's return.

Standard Lower Upper


Coefficients Error t-stat p-value 95% 95%
Intercept 0.004 0.006 0.62 0.05364 -0.009 0.017
RM - Rf 0.716 0.119 6.00 1.35E-07 1.477 0.955

a. At the 5% significance level, is the beta coefficient less than one? Show the relevant steps of
the appropriate hypothesis test.

b. At the 5% significance level, are there abnormal returns? Show the relevant steps of the
appropriate hypothesis test.

Problem 4
A marketing manager examines the relationship between the attendance at amusement parks and
the price of admission. He estimates the following model: Attendance = β0 + β1 price + ε, where
Attendance is the average daily number of people who attend an amusement park in July (in
1,000s) and Price is the price of admission. The marketing manager would like to construct
interval estimates for Attendance when Price equals $80. The researcher estimates a modified
model where Attendance is the response variable and the Price is now defined as Price* = Price
– 80. A portion of the regression results is shown in the accompanying table.

Regression Statistics
R Square 0.62
Standard Error 21
Observations 30

Standard Lower Upper


Coefficients Error t-stat p-value 95% 95%
Intercept 86.8 4.2 20.85 1.4E-18 78.2 95.4
Price* −3.1 0.5 −6.69 2.9E-07 −4.0 −2.1

a. According to the modified model, what is the point estimate for Attendance when Price equals
$80?

b. According to the modified model, what is a 95% confidence interval for Attendance when
Price equals $80? (Note that t0.025,28 = 2.048.)

c. According to the modified model, what is a 95% prediction interval for Attendance when
Price equals $80? (Note that t0.025,28 = 2.048.)

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