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Quantitative Analysis 3

The document consists of a series of 64 questions related to quantitative analysis and regression analysis, covering topics such as slope coefficients, statistical inference, assumptions of linear regression, multicollinearity, and interpretation of regression results. Each question presents multiple-choice options, testing knowledge on the principles and applications of regression analysis. The questions aim to assess understanding of key concepts in statistical modeling and the implications of various statistical conditions.

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0% found this document useful (0 votes)
29 views22 pages

Quantitative Analysis 3

The document consists of a series of 64 questions related to quantitative analysis and regression analysis, covering topics such as slope coefficients, statistical inference, assumptions of linear regression, multicollinearity, and interpretation of regression results. Each question presents multiple-choice options, testing knowledge on the principles and applications of regression analysis. The questions aim to assess understanding of key concepts in statistical modeling and the implications of various statistical conditions.

Uploaded by

truongnb23401b
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Quantitative Analysis

Question #1 of 64 Question ID: 438961

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

A) slope coefficient in a multiple regression is the change in the dependent variable for a one-unit
change in the independent variable, holding all other variables constant.
B) slope coefficients in the multiple regression are referred to as partial betas.
C) slope coefficient in a multiple regression is the value of the dependent variable for a given value of
the independent variable.

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

Question #2 of 64 Question ID: 438956

Which of the following conditions will least likely affect the statistical inference about regression parameters by itself?

A) Conditional heteroskedasticity.

B) Multicollinearity.

C) Serial correlation.

D) Unconditional heteroskedasticity.

Question #3 of 64 Question ID: 424958

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 #4 of 64 Question ID: 438927

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.

Question #5 of 64 Question ID: 438936

Unlike the coefficient of determination, the coefficient of correlation:

A) can have an absolute value greater than 1.


B) indicates the percentage of variation explained by a regression model.

C) measures the strength of association between the two variables more exactly.
D) indicates whether the slope of the regression line is positive or negative.

Question #6 of 64 Question ID: 438963

One of the underlying assumptions of a multiple regression is that the variance of the residuals is constant for various levels of
the independent variables. This quality is referred to as:

A) a normal distribution.
B) homoskedasticity.

C) a linear relationship.
D) serial correlation.

Question #7 of 64 Question ID: 438946

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) constant of the regression will be closer to zero.

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

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


D) standard error of the regression will be lower.

Question #8 of 64 Question ID: 438928

Trudy Baker, FRM and Steven Phillips, FRM are planning to do a regression analysis. They discuss specifying the equation they
wish to estimate. Baker proposes the specification E(Yi|Xi) = B0 + (B1) × (Xi2). Phillips proposes the specification (Yi|Xi) = B0 + (B1
× Xi)2. Which, if either, is appropriate when applying linear regression?

A) Both the specification of Baker and Phillips.


B) The specification of Phillips but not that of Baker.
C) Neither the specification of Baker nor that of Phillips.

D) The specification of Baker but not that of Phillips.

Question #9 of 64 Question ID: 438915

The purpose of regression is to:

A) explain the variation in the independent variable.

B) get the largest R2 possible.


C) explain the mean of the independent variable.

D) explain the variation in the dependent variable.

Question #10 of 64 Question ID: 438919

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


B) changes, no change in sales is expected.

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

D) goes up by one hour per week, sales of accessories increase by $1.6 million.
Question #11 of 64 Question ID: 438947

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 = 1.200; slope not significantly different from zero.

B) t = 3.000; slope is significantly different from zero.


C) t = 2.667; slope is significantly different from zero.

D) t = 1.789; slope is not significantly different from zero.

Question #12 of 64 Question ID: 438955

An analyst is estimating whether a fund's excess return for a quarter is related to interest rates and last quarter's excess return. The
regression equation is found to have unconditional heteroskedasticity and serial correlation. Which of the following is most accurate?
Parameter estimates will be:

A) inaccurate and statistical inference about the parameters will not be valid.

B) inaccurate but statistical inference about the parameters will be valid.

C) accurate but statistical inference about the parameters will not be valid.

D) accurate and statistical inference about the parameters will be valid.

Question #13 of 64 Question ID: 438932

Assume you perform two simple regressions. The first regression analysis has an R-squared of 0.80 and a beta coefficient of 0.10. The
second regression analysis has an R-squared of 0.80 and a beta coefficient of 0.25. Which one of the following statements is most
accurate?

A) Results of the second analysis are more reliable than the first analysis.

B) Results from both analyses are equally reliable.

C) The influence on the dependent variable of a one-unit increase in the independent variable is the same in
both analyses.

D) Results from the first analysis are more reliable than the second analysis.
Question #14 of 64 Question ID: 438939

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) 0.599.

B) 2.950.

C) 0.774.

D) 0.130.

Question #15 of 64 Question ID: 438934

A simple linear regression equation had a coefficient of determination (R2) of 0.8. What is the correlation coefficient between the dependent
and independent variables and what is the covariance between the two variables if the variance of the independent variable is 4 and the
variance of the dependent variable is 9?

Correlation
coefficient Covariance

A) 0.89 4.80

B) 0.91 5.34

C) 0.91 4.80

D) 0.89 5.34

Question #16 of 64 Question ID: 438967

Which of the following statements regarding multicollinearity is FALSE?


A) Multicollinearity may be a problem even if the multicollinearity is not perfect.

B) If the t-statistics for the individual independent variables are insignificant, yet the F-statistic is significant, this
indicates the presence of multicollinearity.

C) Multicollinearity makes it difficult to determine the contribution to explanation of the dependent variable of an
individual explanatory variable.

D) Multicollinearity may be present in any regression model.

Question #17 of 64 Question ID: 438938

An analyst performs two simple regressions. The first regression analysis has an R-squared of 0.40 and a beta coefficient of 1.2. The
second regression analysis has an R-squared of 0.77 and a beta coefficient of 1.75. Which one of the following statements is most
accurate?

A) The R-squared of the first regression indicates that there is a 0.40 correlation between the independent and
the dependent variables.

B) The second regression equation has more explaining power than the first regression equation.

C) The beta coefficient of the 2nd regression indicates that this regression has more explaining power than the
first.

D) The first regression equation has more explaining power than the second regression equation.

Question #18 of 64 Question ID: 438935

Which term is least likely to apply to a regression model?

A) Coefficient of variation.

B) Goodness of fit.

C) Coefficient of determination.

D) R2.

Question #19 of 64 Question ID: 438966

Which of the following is a potential remedy for multicollinearity?

A) Increase the sample size.

B) Take first differences of the dependent variable.

C) Omit one or more of the collinear variables.


D) Add dummy variables to the regression.

Question #20 of 64 Question ID: 438968

A variable is regressed against three other variables, x, y, and z. Which of the following would NOT be an indication of multicollinearity? X
is closely related to:

A) 9y, and x is closely related to 4z.

B) 3y + 2z.

C) y2.

D) 3.

Question #21 of 64 Question ID: 438954

Consider the following graph of residuals and the regression line from a time-series regression:

These residuals exhibit the regression problem of:

A) heteroskedasticity.

B) homoskedasticity.

C) autocorrelation.

D) multicolinearity.

Question #22 of 64 Question ID: 438959

If the variance of the residuals is not constant across all observations in the sample, the regression exhibits heteroskedasticity. Effects of
heteroskedasticity include which of the following problems?

I. The coefficient estimates in the regression model are affected.

II. If the standard errors are too small, but the coefficient estimates themselves are not affected, the t-statistics may be too large and the
null hypothesis of no statistical significance will be rejected too often.

A) I only.

B) Both I and II.

C) Neither I nor II.

D) II only.

Question #23 of 64 Question ID: 438948

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 = -3.750; slope is significantly different from zero.

B) t = 3.750; slope is significantly different from zero.

C) t = 3.333; slope not significantly different from zero.

D) t = -3.333; slope is significantly negative.

Question #24 of 64 Question ID: 424957

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

A) The error term is normally distributed.

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

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

D) The variance of the error term is one.

Question #25 of 64 Question ID: 438940


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?

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

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

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

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

Question #26 of 64 Question ID: 438970

An analyst further studies the independent variables of a study she recently completed. The correlation matrix shown below is the result.
Which statement best reflects possible problems with a multivariate regression?

Age Education Experience Income

Age 1.00

Education 0.50 1.00

Experience 0.95 0.55 1.00

Income 0.60 0.65 0.89 1.00

A) Education may be unnecessary.

B) Experience may be a redundant variable.

C) Age should be excluded from the regression.

D) Income is not needed.

Question #27 of 64 Question ID: 424959

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

A) expected value of the residuals is zero.

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

C) variance of the residuals is constant.

D) residuals are independently distributed.


Question #28 of 64 Question ID: 438943

The estimated slope coefficient from a single linear regression model is 0.55 with a standard error of 0.30. Assuming the sample for this
model has 1,000 observations, what can we conclude about the 95% confidence interval for the model's slope coefficient?

A) The slope coefficient is significantly different from zero.

B) The null hypothesis that the slope coefficient is equal to zero should be accepted.

C) The slope coefficient is not significantly different from zero.

D) The null hypothesis that the slope coefficient is different than zero should be accepted.

Question #29 of 64 Question ID: 438949

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) {-0.766 < b1 < 3.406}.

B) {0.480 < b1 < 2.160}.

C) {0.444 < b1 < 2.196}.

D) {0.900 < b1 < 1.740}.

Question #30 of 64 Question ID: 438922

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) 5.83

B) 6.50

C) -0.55

D) 2.83

Question #31 of 64 Question ID: 438965

Which of the following statements least accurately describes one of the fundamental multiple regression assumptions?
A) There is no exact linear relationship between any two or more independent variables.

B) The variance of the error terms is not constant (i.e., the errors are heteroskedastic).

C) The error term is normally distributed.

D) The independent variables are not random.

Question #32 of 64 Question ID: 438924

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) 4.5.

C) 10.

D) 20.

Question #33 of 64 Question ID: 438910

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

A) error term.

B) scattergram.

C) intercept.

D) slope coefficient.

Question #34 of 64 Question ID: 438912

If the correlation between two variables is −1.0, the scatter plot would appear along a:

A) a curved line running from southwest to northeast.

B) a curved line centered in the scatter plot.

C) straight line running from northwest to southeast.

D) straight line running from southwest to northeast.


Question #35 of 64 Question ID: 438920

An analyst is examining the relationship between two random variables, RCRANTZ and GSTERN. He performs a linear regression that
produces an estimate of the relationship:

RCRANTZ = 61.4 − 5.9GSTERN

Which interpretation of this regression equation is least accurate?

A) In this regression, RCRANTZ is the dependent variable and GSTERN is the independent variable.

B) The covariance of RCRANTZ and GSTERN is negative.

C) The intercept term implies that if GSTERN is zero, RCRANTZ is 61.4.

D) If GSTERN increases by one unit, RCRANTZ should increase by 5.9 units.

Question #36 of 64 Question ID: 438918

The independent variable in a regression equation is called all of the following EXCEPT:

A) predicted variable.

B) exogenous variable.

C) predicting variable.

D) explanatory variable.

Question #37 of 64 Question ID: 438929

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

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

B) An assumption of linear regression is that the residuals are independently distributed.

C) A perfectly negative correlation can be depicted by a correlation coefficient of +1.

D) The coefficient of determination is defined as the strength of the linear relationship between two variables.

Question #38 of 64 Question ID: 438930

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

C) dependent variable and independent variable are linearly related.

D) disturbance term is homoskedastic and is independently distributed.

Questions #39-40 of 64

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 construction 1.25 0.33 3.78

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

Question #39 of 64 Question ID: 438951

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

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 #40 of 64 Question ID: 438952

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

A) 0.76 ± 1.96(8.44).

B) 0.76 ± 1.96(0.09).

C) 1.25 ± 1.96(0.33).

D) 1.25 ± 1.96(3.78).

Question #41 of 64 Question ID: 438953

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

Predictor Coefficient Standard Error of the Coefficient

Intercept 0.10 0.50

Slope (Number of Courses) 2.20 0.60

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

A) t-Statistic: 0.20. Slope: Not significantly different from zero.

B) t-Statistic: 0.20. Slope: Significantly different from zero.

C) t-Statistic: 3.67. Slope: Not significantly different from zero.

D) t-Statistic: 3.67. Slope: Significantly different from zero.

Question #42 of 64 Question ID: 438926

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

C) -1.5 is the elasticity of Y with respect to X.

D) The dependent variable declines by -1.5 units if X increases by 1 unit.

Question #43 of 64 Question ID: 438957

Which of the following statements regarding heteroskedasticity is FALSE?

A) The assumption of linear regression is that the residuals are heteroskedastic.

B) Conditional heteroskedasticity is the case in which the residuals are correlated with the values of the
independent variables.

C) Heteroskedasticity may occur in cross-section or time-series analyses.

D) Heteroskedasticity results in an estimated variance that is too large and, therefore, affects statistical
inference.
Question #44 of 64 Question ID: 438944

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) {-2.300 < b1 < -0.700}.

B) {-2.317 < b1 < -0.683}.

C) {-3.542 < b1 < 0.542}.

D) {0.683 < b1 < 2.317}.

Question #45 of 64 Question ID: 438911

Which of the following statements regarding scatter plots is most accurate? Scatter plots:

A) illustrate the scatterings of a single variable.

B) are used to examine the fourth moment of a distribution (kurtosis).

C) are used to examine the third moment of a distribution (skewness).

D) illustrate the relationship between two variables.

Question #46 of 64 Question ID: 438962

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) t-value.

B) Slope coefficient.

C) p-value.

D) Intercept term.

Question #47 of 64 Question ID: 438925

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) +0.72%.

B) +1.00%.

C) +0.10%.

D) +0.65%.

Question #48 of 64 Question ID: 438964

Assume that in a particular multiple regression model, it is determined that the error terms are uncorrelated with each other. Which of the
following statements is most accurate?

A) This model is in accordance with the basic assumptions of multiple regression analysis because the errors
are not serially correlated.

B) Multicollinearity exists in this multiple regression model, and can be corrected through the addition of a
correlated variable.

C) Unconditional heteroskedasticity present in this model should not pose a problem, but can be corrected by
using robust standard errors.

D) Serial correlation may be present in this multiple regression model, and can be confirmed only through a
Durbin-Watson test.

Question #49 of 64 Question ID: 438941

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

A) a population regression function.

B) Ockham's razor.

C) ordinary least squares.

D) a scattergram.

Question #50 of 64 Question ID: 438923

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) $1.05 million.

C) $9.05 million.

D) $2.65 million.

Question #51 of 64 Question ID: 438913

In the scatter plot below, the correlation between the return on stock A and the market index is:

A) negative.

B) not discernable using the scatter plot.

C) positive.

D) zero.

Question #52 of 64 Question ID: 438914

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:
A) return on equity is the explanatory variable, and financial leverage and capital expenditure are the explained
variables.

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

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

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

Question #53 of 64 Question ID: 438933

Which of the following statements regarding the coefficient of determination is least accurate? The coefficient of determination:

A) cannot decrease as independent variables are added to the model.

B) may range from −1 to +1.

C) is the percentage of the total variation in the dependent variable that is explained by the independent
variable.

D) is the ratio of explained variation to total variation.

Question #54 of 64 Question ID: 424960

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

A) The residuals are normally distributed.

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

C) The variance of the residuals is constant.

D) The independent variable is correlated with the residuals.

Question #55 of 64 Question ID: 438960

The Gauss-Markov theorem says that if the linear regression model assumptions are true and the regression errors display
homoskedasticity, then the ordinary least squares (OLS) estimators exhibit which of the following properties?
A) In repeated sampling, the averages of the coefficients from a sample will be distributed around the true
population parameters.

B) The OLS estimate of the variance of the errors is biased.

C) The OLS estimated coefficients have the maximum variance compared to other methods of estimating the
coefficients.

D) The OLS estimated coefficients are based on non-linear functions.

Question #56 of 64 Question ID: 438958

Which expression best represents the condition homoskedasticity? (In the expressions assume σ2 > 0)

A) corr(εi, εi + j) = 0.

B) E(εi|Xi) = σ2.

C) corr(Xi, εi) = 0.

D) V(εi|Xi) = σ2.

Question #57 of 64 Question ID: 438945

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:

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

B) reject the null hypothesis and conclude that leverage does not significantly explain returns.

C) reject the null hypothesis and conclude that leverage significantly explains returns.

D) do not reject the null hypothesis and conclude that leverage does not significantly explain returns.

Question #58 of 64 Question ID: 438917

A regression analysis has the goal of:

A) estimating how changes in independent variables affect a dependent variable.

B) measuring the tendency of both independent and dependent variables to regress towards their respective
means.

C) estimating how changes in dependent variable affect an independent variable.

D) measuring how the properties of the variables regress towards each other.
Question #59 of 64 Question ID: 438937

What does the R2 of a simple regression of two variables measure and what calculation is used to equate the correlation coefficient to the
coefficient of determination?

R2 measures: Correlation coefficient

A) percent of variability of the


independent variable that is
R2 = r2
explained by the variability of the
dependent variable

B) percent of variability of the


independent variable that is
R2 = r × 2
explained by the variability of the
dependent variable

C) percent of variability of the


dependent variable that is
R2 = r × 2
explained by the variability of the
independent variable

D) percent of variability of the


dependent variable that is
R2 = r2
explained by the variability of the
independent variable

Question #60 of 64 Question ID: 438921

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:

Coefficient Standard Error of Coefficient t-Value

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) 20.3%.

B) 18.4%.

C) 25.6%.
D) 33.8%.

Question #61 of 64 Question ID: 438942

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) 3.2.

C) 1.4.

D) 5.0.

Question #62 of 64 Question ID: 438969

An analyst runs a regression of portfolio returns on three independent variables. These independent variables are price-to-sales (P/S),
price-to-cash flow (P/CF), and price-to-book (P/B). The analyst discovers that the p-values for each independent variable are relatively
high. However, the F-test has a very small p-value. The analyst is puzzled and tries to figure out how the F-test can be statistically
significant when the individual independent variables are not significant. What violation of regression analysis has occurred?

A) serial correlation.

B) multicollinearity.

C) conditional heteroskedasticity.

D) unconditional heteroskedasticity.

Question #63 of 64 Question ID: 438931

Linear regression is based on a number of assumptions. 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) A linear relationship exists between the dependent and independent variables.

C) There is at least some correlation between the error terms from one observation to the next.

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

Question #64 of 64 Question ID: 438916

The capital asset pricing model is given by: Ri =Rf + Beta ( Rm -Rf) where Rm = expected return on the market, Rf = risk-free market and Ri
= expected return on a specific firm. The dependent variable in this model is:

A) Rm - Rf.

B) Ri.

C) Rm .

D) Rf.

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