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7 A Introduction To Linear Regression - Answers

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59 views4 pages

7 A Introduction To Linear Regression - Answers

Uploaded by

Văn Khoa
Copyright
© © All Rights Reserved
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Question #1 of 7 Question ID: 1377373

The coefficient of determination for a linear regression is best described as the:

percentage of the variation in the dependent variable explained by the variation


A)
of the independent variable.

percentage of the variation in the independent variable explained by the


B)
variation of the dependent variable.

C) covariance of the independent and dependent variables.

Explanation

The coefficient of determination for a linear regression describes the percentage of the
variation in the dependent variable explained by the variation of the independent variable.

(Study Session 2, Module 7.2, LOS 7.d)

Question #2 of 7 Question ID: 1377375

Consider the following analysis of variance (ANOVA) table:

Sum of Degrees of Mean sum of


Source
squares freedom squares

Regression 550 1 550.000


Error 750 38 19.737
Total 1,300 39

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

A) 0.97.

B) 0.42.

C) 27.87.

Explanation

F = mean regression sum of squares / mean squared error = 550 / 19.737 = 27.867.

(Study Session 2, Module 7.2, LOS 7.e)


Question #3 of 7 Question ID: 1377377

Use the following t-table for this question:

Probability in Right Tail


d.f. 5.0% 2.5% 1.0%
196 1.653 1.972 2.346

197 1.653 1.972 2.345


198 1.653 1.972 2.345
199 1.653 1.972 2.345
200 1.653 1.972 2.345
201 1.652 1.972 2.345
202 1.652 1.972 2.345

A sample of 200 monthly observations is used for a simple linear regression of returns
versus leverage. The resulting equation is:

returns = 0.04 + 0.894(Leverage) + ε

If the standard error of the estimated slope variable is 0.06, a test of the hypothesis that the
slope coefficient is greater than or equal to 1.0 with a significance of 5% should:

A) be rejected the test statistic of –1.77 is greater than the critical value.

B) be rejected because the test statistic of –1.77 is less than the critical value.

not be rejected because the test statistic of –1.58 is not less than the critical
C)
value.

Explanation

The test statistic is (0.894 – 1.0) / 0.06 = –1.77. The critical value with 200 – 2 = 198 degrees
of freedom for 5% significance is –1.653. Because the test statistic of –1.77 is less than the
lower critical value, we reject the hypothesis that b1 is greater than or equal to 1.0.

(Study Session 2, Module 7.2, LOS 7.f)

Question #4 of 7 Question ID: 1377374


A simple linear regression is performed 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:

Coefficient Standard Error of Coefficient t-Value


Intercept 1.71 2.950 0.58
S&P 500 1.52 0.130 11.69
Coefficient of determination = 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) 0.599.

B) 0.774.

C) 0.130.

Explanation

We are given the coefficient of determination of 0.599 (R2) and are asked to find the
correlation coefficient (r), which is the square root of the coefficient of determination for a
simple regression:

√0.599 = 0.774

(Study Session 2, Module 7.2, LOS 7.d)

Question #5 of 7 Question ID: 1377378

Given the relationship: Y = 2.83 + 1.5X

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

A) –0.55.

B) 2.83.

C) 5.83.

Explanation

Y = 2.83 + (1.5)(2) = 2.83 + 3 = 5.83.

(Study Session 2, Module 7.3, LOS 7.g)


Question #6 of 7 Question ID: 1377376

Consider the following analysis of variance (ANOVA) table:

Sum of Degrees of Mean sum of


Source
squares freedom squares
Regression 556 1 556

Error 679 50 13.5

Total 1,235 51

The R2 for this regression is closest to:

A) 0.82.

B) 0.45.

C) 0.55

Explanation

R2 = regression sum of squares / total sum of squares = 556 / 1,235 = 0.45.

(Study Session 2, Module 7.2, LOS 7.e)

Question #7 of 7 Question ID: 1377372

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

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

B) The error terms from a regression are positively correlated.

C) Values of the independent variable are not correlated with the error term.

Explanation

One assumption of linear regression is that the error terms are independently distributed.
In this case, the correlations between error terms are expected to be zero. Constant
variance of the error terms and no correlation between the independent variable and the
error term are assumptions of linear regression.

(Study Session 2, Module 7.1, LOS 7.c)

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