equities and is meant to reflect the risk/return characteristics of the large cap universe.
14.
Estimate the linear regression of
Y
on
X
.
ANSWER:
20,
27.6/20
1.38,
24.8/20
1.24
n
X
Y
2
2
2
2
158.5
(20)(1.38)(1.24)
124.276
1.083
152.8
(20)(1.38)
114.712
i
i
i
x y
nx y
b
x
nx
1
1
b
y
b x
1.24
–
(1.083)(1.38)
=
- 0.2545
The sample least squares regression equation is
ˆ
0.2545
1.083
i
i
y
x
15.
Interpret the slope of the sample regression line.
ANSWER:
For a one unit increase in the rate of return of the S&P 500 index, we estimate that the rate of
return
of the corporation’s stock will increase, on average, by 1.083%
16.
Interpret the intercept of the sample regression line.
ANSWER:
When the percentage rate of return of the S&P 500 index is zero, we estimate that the
corporation’s rate of return will be
-.0.2545%

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