PS7 - 99 confident of this because the |t-stat| of 5.96 is...

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Problem Set 7 Timothy Wong SM222 B3 April 29th, 2010 1. Ypredicted=6.16 + (0.0134*value of s&p 500 index) + (132.97*daily return on 3- month treasury bill) 2. The regression tells us that Raytheon has a 6.16% expected return per day during the Dec 6th, 2000 to Sept 10, 2001 period. We are at least 95% confident because the |t-stat| is greater than 2. For every 1% that the S&P 500 market increases, Raytheon is ex- pected to increase by 0.013. Furthermore, if the market increases by 1%, the daily re- turn on 3-month Treasury bill is expected to have a return of 132.97. We are more that
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Unformatted text preview: 99% confident of this because the |t-stat| of 5.96 is greater than 3. We are at least 95% confident in the Treasury bill’s return because the |t-stat| of 2.68 is greater than 2. 3. Ypredicted= 6.16+(0.0134*1038.77)+(132.97*0.01016) =24.96 Abnormal Return Calculation: Actual: 26.71 Predicted: 24.96 Actual - Predicted = 1.75 Yes, this agrees with my expectations because it proves that the regression I used calcu-lated the excess returns on the Raytheon stock accurately....
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