Question #1 of 46 Question ID: 1268201

In a regression analysis, the effects from independent variables that are not included in the

model are embodied in the:

A) error term.

B) intercept.

C) slope coe cient.

D) scattergram.

Question #2 of 46 Question ID: 1268198

Assume an analyst performs two simple regressions. The first regression analysis has an R-

squared of 0.90 and a slope coefficient of 0.10. The second regression analysis has an R-
squared of 0.70 and a slope coefficient of 0.25. Which one of the following statements is

most accurate?

The in uence on the dependent variable of a one unit increase in the independent
A)
variable is 0.9 in the rst analysis and 0.7 in the second analysis.

B) The rst regression has more explanatory power than the second regression.

The in uence on the dependent variable of a one unit increase in the independent
C)
variable is 0.7 in the rst analysis and 0.9 in the second analysis.

D) Results of the second analysis are more reliable than the rst analysis.

Question #3 of 46 Question ID: 1268196

Joe Harris is interested in why the returns on equity differ from one company to another. He
chose several company-specific variables to explain the return on equity, including financial

leverage and capital expenditures. In his model:

return on equity is the explanatory variable, and nancial leverage and capital
A)
expenditure are the explained variables.
 return on equity is the dependent variable, and nancial leverage and capital
B)
expenditures are independent variables.

return on equity is the independent variable, and nancial leverage and capital
C)
expenditures are dependent variables.

return on equity, nancial leverage, and capital expenditures are all independent
D)
variables.

Question #4 of 46 Question ID: 1268191

The capital asset pricing model is given by:

Ri = Rf + Beta (Rm − Rf)

where:

Rm = expected return on the market

Rf = risk-free market

Ri = expected return on a specific firm.

The dependent variable in this model is:

A) Rf.

B) Rm.

C) Rm − Rf.

D) Ri.

Question #5 of 46 Question ID: 1268236

Consider the following estimated regression equation:

ROEt = 0.23 − 1.50 CEt

The standard error of the slope coefficient is 0.40 and the number of observations is 32. The
95 percent confidence interval for the slope coefficient, b1, is:
A) {−3.542 < b1 < 0.542}.

B) {−2.317 < b1 < −0.683}.

C) {−2.300 < b1 < −0.700}.

D) {0.683 < b1 < 2.317}.

Question #6 of 46 Question ID: 1268206

Sample regression coefficients are often estimated with a process known as:

A) a population regression function.

B) a scattergram.

C) Ockham's razor.

D) ordinary least squares.

Question #7 of 46 Question ID: 1268235

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:

do not reject the null hypothesis and conclude that leverage signi cantly explains
A)
returns.

B) reject the null hypothesis and conclude that leverage signi cantly explains returns.

reject the null hypothesis and conclude that leverage does not signi cantly explain
C)
returns.

do not reject the null hypothesis and conclude that leverage does not signi cantly
D)
explain returns.
Question #8 of 46 Question ID: 1268211

Which of the following is least likely an assumption of linear regression? The:

A) residuals are mean reverting; that is, they tend towards zero over time.

B) expected value of the residuals is zero.

C) variance of the residuals is constant.

D) residuals are independently distributed.

Question #9 of 46 Question ID: 1268232

Given: Y = 2.83 + 1.5X

What is the predicted value of the dependent variable when the value of an independent
variable equals 2?

A) 2.83

B) −0.55

C) 6.50

D) 5.83

Question #10 of 46 Question ID: 1268233

A simple linear regression is run to quantify the relationship between the return on the

common stocks of medium sized companies (Mid Caps) and the return on the S&P 500
Index, using the monthly return on Mid Cap stocks as the dependent variable and the
monthly return on the S&P 500 as the independent variable. The results of the regression
are shown below:

Standard Error of
Coefficient t-Value
Coefficient

Intercept 1.71 2.950 0.58

S&P 500 1.52 0.130 11.69

R2 = 0.599

Use the regression statistics presented above and assume this historical relationship still
holds in the future period. If the expected return on the S&P 500 over the next period were
11%, the expected return on Mid Cap stocks over the next period would be:

A) 25.6%.

B) 20.3%.

C) 18.4%.

D) 33.8%.

Question #11 of 46 Question ID: 1268210

Which of the following is least likely an assumption of linear regression analysis?

A) The X values are uncorrelated with the error terms.

B) The expected value of the residuals is zero.

C) The error term is normally distributed.

D) The Y values are all less than 3 standard deviations from the regression line.

Question #12 of 46 Question ID: 1268234

Consider the following estimated regression equation:

AUTOt = 0.89 + 1.32 PIt

The standard error of the coefficient is 0.42 and the number of observations is 22. The 95
percent confidence interval for the slope coefficient, b1, is:

A) {0.900 < b1 < 1.740}.

B) {0.480 < b1 < 2.160}.

C) {0.444 < b1 < 2.196}.

D) {-0.766 < b1 < 3.406}.

Question #13 of 46 Question ID: 1268194

A regression analysis has the goal of:

A) estimating how changes in dependent variable a ect an independent variable.

B) estimating how changes in independent variables a ect a dependent variable.

measuring the tendency of both independent and dependent variables to regress

C)
towards their respective means.

D) measuring how the properties of the variables regress towards each other.

Question #14 of 46 Question ID: 1268225

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 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) Greater than 0.10.

B) Between 0.01 and 0.05.

C) Lower than 0.01.

D) Between 0.05 and 0.10.

Question #15 of 46 Question ID: 1268197

A simple linear regression is run to quantify the relationship between the return on the
common stocks of medium sized companies (Mid Caps) and the return on the S&P 500

Index, using the monthly return on Mid Cap stocks as the dependent variable and the
monthly return on the S&P 500 as the independent variable. The results of the regression

are shown below:

Standard Error
Coefficient t-Value
of Coefficient
Intercept 1.71 2.950 0.58

S&P 500 1.52 0.130 11.69

R2 = 0.599

The strength of the relationship, as measured by the correlation coefficient, between the
return on Mid Cap stocks and the return on the S&P 500 for the period under study was:
A) 0.130.

B) 0.599.

C) 2.950.

D) 0.774.

Question #16 of 46 Question ID: 1268230

In the estimated regression equation Y = 0.78 − 1.5 X, which of the following is least accurate
when interpreting the slope coefficient?

A) The dependent variable increases by 1.5 units if X decreases by 1 unit.

B) −1.5 is the elasticity of Y with respect to X.

C) The dependent variable declines by −1.5 units if X increases by 1 unit.

D) If the value of X is zero, the value of Y will be −1.5.

Question #17 of 46 Question ID: 1268237

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?

If beta is equal to 1, the likelihood that the absolute value of the test statistic is
A)
equal to 1.97 is less than or equal to 5%.

For a sample of 100 beta values, the expected number of times beta would be equal
B)
to 1 is less than or equal to 5%.

The proportion of occurrences when the absolute value of the test statistic will be
C) higher when beta is equal to 1 than when beta is not equal to 1 is less than or equal
to 5%.

If beta is equal to 1, the likelihood that the absolute value of the test statistic would
D)
be greater than or equal to 1.97 is 5%.

Question #18 of 46 Q estion ID: 1268231

Question #18 of 46 Question ID: 1268231

Consider the regression results from the regression of Y against X for 50 observations:

Y = 5.0 − 1.5 X

The standard error of the estimate is 0.40 and the standard error of the coefficient is 0.45.

The predicted value of Y if X is 10 is:

A) 10.

B) 20.

C) 4.5.

D) -10.

Question #19 of 46 Question ID: 1268207

The assumptions underlying linear regression include all of the following except the:

A) disturbance term is normally distributed with an expected value of 0.

B) disturbance term is homoskedastic and is independently distributed.

C) dependent variable and independent variable are linearly related.

D) independent variable is linearly related to the residuals (or disturbance term).

Question #20 of 46 Question ID: 1268217

Consider the regression results from the regression of Y against X for 50 observations:

Y = 0.78 + 1.2 X

The standard error of the estimate is 0.40 and the standard error of the coefficient

is 0.45.

Which of the following reports the correct value of the t-statistic for the slope and correctly
evaluates its statistical significance with 95 percent confidence?

A) t = 3.000; slope is signi cantly di erent from zero.

B) t = 2.667; slope is signi cantly di erent from zero.

C) t = 1.789; slope is not signi cantly di erent from zero.

D) t = 1.200; slope not signi cantly di erent from zero.

Question #21 of 46 Question ID: 1268218

An analyst has been assigned the task of evaluating revenue growth for an online education

provider company that specializes in training adult students. She has gathered information
about student ages, number of courses offered to all students each year, years of

experience, annual income and type of college degrees, if any. A regression of annual dollar
revenue on the number of courses offered each year yields the results shown below.

Coefficient Estimates
Standard Error of the
Predictor Coefficient
Coefficient
Intercept 0.10 0.50
Slope (Number of
2.20 0.60
Courses)

Which statement about the slope coefficient is most correct, assuming a 5 percent level of
significance and 50 observations?

A) t-Statistic: 3.67. Slope: Signi cantly di erent from zero.

B) t-Statistic: 3.67. Slope: Not signi cantly di erent from zero.

C) t-Statistic: 0.20. Slope: Signi cantly di erent from zero.

D) t-Statistic: 0.20. Slope: Not signi cantly di erent from zero.

Question #22 of 46 Question ID: 1268216

Consider the regression results from the regression of Y against X for 50 observations:

Y = 0.78 − 1.5 X

The standard error of the estimate is 0.40 and the standard error of the coefficient
is 0.45.

Which of the following reports the correct value of the t-statistic for the slope and correctly
evaluates H0: b1 ≥ 0 versus Ha: b1 < 0 with 95 percent confidence?
A) t = 3.333; slope not signi cantly di erent from zero.

B) t = -3.750; slope is signi cantly di erent from zero.

C) t = -3.333; slope is signi cantly negative.

D) t = 3.750; slope is signi cantly di erent from zero.

Question #23 of 46 Question ID: 1268238

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) not equal to one cannot be rejected.

C) equal to one cannot be rejected.

D) equal to one cannot be rejected or accepted.

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.

+ 1.2 + 0.5
Salaries = 34.98 + 6.3 Gender
Education Experience

(29.11) (8.93) (2.98) (1.58)

Question #24 - 25 of 46 Question ID: 1268228

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) 59.18.

C) 65.48.
D) 61.28.

Question #25 - 25 of 46 Question ID: 1268229

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) does not exceed the critical value of 1.96.

C) exceeds the critical value of 1.65.

D) does not exceed the critical value of 1.65.

Question #26 of 46 Question ID: 1268219

An analyst is regressing fund returns against the return on the Wilshire 5000 to determine
whether beta is equal to 1.0. The analyst is trying to determine whether the number of

observations should be increased. Which of the following is a reason why the test will have

higher power if the number of observations is increased? The:

A) mean squared error of the regression will be lower.

B) constant of the regression will be closer to zero.

C) standard error of the regression will be lower.

D) estimate of beta will be farther away from 1.0.

Question #27 of 46 Question ID: 1268212

Paul Frank is an analyst for the retail industry. He is examining the role of television viewing

by teenagers on the sales of accessory stores. He gathered data and estimated the following
regression of sales (in millions of dollars) on the number of hours watched by teenagers (in

hours per week):

Salest = 1.05 + 1.6 TVt

Which of the following is the most accurate interpretation of the estimated results? If TV

watching:

A) changes, no change in sales is expected.

B) goes up by one hour per week, sales of accessories increase by $1.60.

is zero (that is, every teenager turns o the TV for a week), the expected sales of
C)
accessories is $0.

D) goes up by one hour per week, sales of accessories increase by $1.6 million.

Question #28 of 46 Question ID: 1268204

Which of the following is least likely an assumption of a simple regression?

A) The error term is normally distributed.

B) The variance of the error term is one.

C) The expected value of the error term is zero.

D) There is a linear relationship between dependent and independent variables.

Question #29 of 46 Question ID: 1268203

As part of a regression analysis, an analyst finds that: Y − b1 × X = −1.8 and b1 = 3.2. Based

upon these results, for every unit increase in the independent variable, on average the

dependent variable increases by:

A) 1.8.

B) 1.4.

C) 3.2.

D) 5.0.
Question #30 of 46 Question ID: 1268239

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:

standard error for R&D is 0.45

standard error for ADV is 2.2

standard error for COMP 0.63

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 = 2.778.

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

C) H0: bR&D ≠ 1 versus Ha: bR&D = 1; t = 2.778.

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

Question #31 of 46 Question ID: 1268199

When interpreting the results of a multiple regression analysis, which of the following terms

represents the value of the dependent variable when the independent variables are all equal

to zero?

A) Slope coe cient.

B) p-value.

C) t-value.

D) Intercept term.
Question #32 of 46 Question ID: 1268209

Which of the following is least likely an assumption of linear regression?

A) The independent variable is correlated with the residuals.

B) The residuals are normally distributed.

C) The variance of the residuals is constant.

D) There is a linear relation between the dependent and independent variables.

Question #33 of 46 Question ID: 1268193

Paul Frank is an analyst for the retail industry. He is examining the role of television viewing

by teenagers on the sales of accessory stores. He gathered data and estimated the following

regression of sales (in millions of dollars) on the number of hours watched by teenagers (TV,

in hours per week):

Salest = 1.05 + 1.6 TVt

The predicted sales if television watching is 5 hours per week is:

A) $8.00 million.

B) $2.65 million.

C) $1.05 million.

D) $9.05 million.

Question #34 of 46 Question ID: 1268202

Which of the following are included in a sample regression function?

I. The intercept.

II. The error term.

III. The slope coefficient.

IV. The independent variable.

A) I and III only.

B) III and IV only.

C) I, III, and IV only.

D) I, II, III, and IV.

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 Operating Profit (Y)

Coefficient
Independent Variables t-value
Estimate

Intercept 103,886 2.740

Population within 5 miles (X1) 4.372 2.133

Operating hours per week (X2) 214.856 0.258

Square footage of facility (X3) 56.767 2.643

R2 0.983

Adjusted R2 0.980

F-Statistic 360.404
Standard error of the model 19,181

Correlation Matrix

Y X1 X2 X3

Y 1.00
X1 0.99 1.00

X2 0.69 0.67 1.00

X3 0.99 0.99 0.71 1.00

Degrees of
0.20 0.10 0.05 0.02 0.01
Freedom

3 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 #35 - 36 of 46 Question ID: 1268221

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) 24 degrees of freedom and 0.05 level of signi cance for a one-tailed test.

B) 24 degrees of freedom and 0.05 level of signi cance for a two-tailed test.

C) 19 degrees of freedom and 0.05 level of signi cance for a two-tailed test.

D) 19 degrees of freedom and 0.05 level of signi cance for a one-tailed test.

Question #36 - 36 of 46 Question ID: 1268222

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) True

B) between 2% and 5%.

C) between 10% and 20%.

D) between 5% and 10%.

Question #37 of 46 Question ID: 1268224

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?

A) Lower than 0.01.

B) Between 0.01 and 0.05.

C) Between 0.05 and 0.10.

D) Greater than 0.10.

Question #38 of 46 Question ID: 1268195

The purpose of regression is to:

A) explain the mean of the independent variable.

B) get the largest R2 possible.

C) explain the variation in the independent variable.

D) explain the variation in the dependent variable.

Question #39 of 46 Question ID: 1268223

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

2 3.21 1.5500

3 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, 2, and 3.

B) 2 and 3 only.

C) 1 and 2 only.

D) 3 only.

Assume you ran a multiple regression to gain a better understanding of the relationship

between lumber sales, housing starts, and commercial construction. The regression uses

lumber sales as the dependent variable with housing starts and commercial construction as
the independent variables. The results of the regression are:

Coefficient Standard Error t-statistics

Intercept 5.37 1.71 3.14

Housing starts 0.76 0.09 8.44

Commercial
1.25 0.33 3.78
construction

The level of significance for a 95% confidence level is 1.96

Question #40 - 41 of 46 Question ID: 1268214

Construct a 95% confidence interval for the slope coefficient for Housing Starts.

A) 1.25 ± 1.96(0.33).

B) 1.25 ± 1.96(3.78).

C) 0.76 ± 1.96(8.44).
D) 0.76 ± 1.96(0.09).

Question #41 - 41 of 46 Question ID: 1268215

Construct a 95% confidence interval for the slope coefficient for Commercial Construction.

A) 0.76 ± 1.96(0.09).

B) 1.25 ± 1.96(0.33).

C) 1.25 ± 1.96(3.78).

D) 0.76 ± 1.96(8.44).

Question #42 of 46 Question ID: 1268226

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 0.01 and 0.05.

B) Greater than 0.10.

C) Between 0.05 and 0.10.

D) Lower than 0.01.

Question #43 of 46 Question ID: 1268200

Which of the following statements regarding the results of a regression analysis is false? The:

intercept is the value that the dependent variable takes on if all the independent
A)
variables had a value of zero.

slope coe cient in a multiple regression is the value of the dependent variable for a
B)
given value of the independent variable.

C) slope coe cients in the multiple regression are referred to as partial betas.

slope coe cient in a multiple regression is the change in the dependent variable for
D)
a one-unit change in the independent variable, holding all other variables constant.

Question #44 of 46 Question ID: 1268192

Sera Smith, a research analyst, had a hunch that there was a relationship between the
percentage change in a firm's number of salespeople and the percentage change in the

firm's sales during the following period. Smith ran a regression analysis on a sample of 50

firms, which resulted in a slope of 0.72, an intercept of +0.01, and an R2 value of 0.65. Based
on this analysis, if a firm made no changes in the number of sales people, what percentage

change in the firm's sales during the following period does the regression model predict?

A) +0.10%.

B) +0.65%.

C) +0.72%.

D) +1.00%.

Question #45 of 46 Question ID: 1268205

Linear regression is based on a number of assumptions. Which of the following is least likely
an assumption of linear regression?

A) A linear relationship exists between the dependent and independent variables.

B) The variance of the error terms each period remains the same.

C) Values of the independent variable are not correlated with the error term.
 There is at least some correlation between the error terms from one observation to
D)
the next.

Question #46 of 46 Question ID: 1268208

Which of the following statements about linear regression analysis is most accurate?

An assumption of linear regression is that the residuals are independently

A)
distributed.

B) A perfectly negative correlation can be depicted by a correlation coe cient of +1.

When there is a strong relationship between two variables we can conclude that a
C)
change in one will cause a change in the other.

The coe cient of determination is de ned as the strength of the linear relationship
D)
between two variables.