Hi, my name abdoulaye. I try to solve a problem based on simple linear regression. here is the problem : The desirability of any financial investment…
Hi, my name abdoulaye. I try to solve a problem based on simple linear regression. here is the problem :
1. The desirability of any financial investment depends heavily upon its risk level. Many financial analysts, consultants and investors use a model known as the beta model to identify the risk level of securities. The dependent variable in this model is the rate of return for ABC, while the average rate of return on a portfolio of all securities traded in the market (also known as the market rate of return) is used as the independent variable.
The table below shows the rate of return of the common stock of ABC Inc. against the marketate of return:
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Order Paper NowRate of return for ABC Inc.(%) 1,-5,12,5,6,7,-6,2
Market rate of return (%) 2,-10,18,9,12,-1,-12,2
Calculations for the above data are provided: Σx = 20 Σy = 22 Σxy = 454 Σx 2 = 802 Σy 2 = 320
a. Assuming that the relationship between the two variables is linear, estimate the regression equation.
b. Compute the coefficient of determination and interpret it in the context of this problem.
c. At the 5% level of significance, can you conclude that the simple linear regression model is significant?
d. Construct the 99% prediction interval for ABC Inc.’s rate of return when the market rate of return is 5%.
Thank you for your help!!!!!