Homework 9 Solutions
Page 1 of 6
Problem 1
Part A
Regression models were run based on different predictors (highest adjusted R squared
highlighted in yellow):
Predictors:
R Sq.
Adj. R Sq.
Earnings
0.323
0.297
Dividend
0.524
0.506
Payout
0.195
0.164
Earnings
Dividend
0.530
0.492
Earnings
Dividend
Payout
0.553
0.497
The best model (highest adjust R squared) was:
Shareholders = 19,049 + 7,947 * Dividend
The same results were obtained using Minitab (see Appendix).
Part B
The Durbin-Watson test was performed:
DW
0.22
d
U
1.48
d
L
1.33
n
28
k
1
alpha
0.05
Since DW < d
L
conclude H
1
:
ρ
> 0 thus there is a problem with serial correlation.
Graphical inspection of the actual/forecast and error shows that errors tend to be correlated:
Shareholders
20,000
30,000
40,000
50,000
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
Year
Shareholders
Actual
Forecast

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