Guided Study 1 Examples class 1 Solution.pdf - Solution to the Guided Study 1 Autumn THE NEXT THIRTEEN QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION

Guided Study 1 Examples class 1 Solution.pdf - Solution to...

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Solution to the Guided Study 1 Autumn THE NEXT THIRTEEN QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION: Suppose that you are interested in the relationship between the return rate on a stock in 2005, compared to the return rate in 2004. You believe that the return rates in both years are positively correlated. A sample of 15 stocks yields the following regression results: 0 b = 5.3, 1 b = 1.04, 0 b s = 1.79, 1 b s = 0.2163, 2 R = 0.64, and MSE = 35.4. 1. How would you slope coefficient 1 b ? ANSWER: For every 1% increase in rate of return in 2004, we would expect the return rate in 2005 to increase, on average, by 1.04%. 2. What is the least squares regression line? ANSWER: ˆ y = 5.3+1.04 X 3. What is the predicted value of Y when X = 5? ANSWER: ˆ y =5.3+1.04×5=10.5 4. Calculate the error sum of squares. ANSWER: MSE =35.4 = 2 SSE n = 13 SSE SSE=35.4×13=460.2 5. Calculate the total sum of squares. ANSWER: 2 R = 0.64 =1- SSE SST =1- 460.2 SST SST = 460.2 / 0.36 = 1278.33 6. Calculate the regression sum of squares (explained).
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