ING M2 - Final Test Make-up 22.01.2021 / 13:00-15:00 Question-1 (40 pts): Question-2 (25 pts): This study source was downloaded by 100000866393153 from CourseHero.com on 06-10-2023 11:34:36 GMT -05:00 https://www.coursehero.com/file/143698850/Final-Test-Make-uppdf/ Question-3 (20 pts): Please indicate your answer and explain your reasoning (or show your work for calculations): a) If the p-value of the intercept in a multiple regression is 0.27, then we should conclude that A) The estimated intercept is within 2 standard errors of zero. B) The estimated intercept is an extrapolation from the rest of the data. C) The population intercept 0 is zero. D) We should reject the null hypothesis H0: 0 = 0. E) Increasing the sample size would increase the p-value for the intercept. b) The presence of heteroscedasticity in a multiple regression implies that A) The R2 statistic is close to 0. B) The R2 statistic is close to 1. C) The overall F-ratio of the model is close to 4. D) The model predicts observations at some x’s more precisely than at others. E) The explanatory variables in the model are correlated with each other. c) A model for insurance risk includes an explanatory variable that is defined as the ratio of the number of residential mail stops to the sum of the number of residential plus business mail stops. If we further add the explanatory variable (business mail stops)/(residential + business mail stops) to the fitted model, then A) R2 of the model will increase dramatically. B) The p-values of these two ratio variables will both be less than 0.05. C) R2 of the model will decrease dramatically. D) The added variable will introduce substantial collinearity. E) The resulting equation will require a nonlinear transformation. d) Correlation among the explanatory (independent) variables in a multiple regression (RMSE: root mean square error) A) Violates an assumption of the multiple regression model. B) Is reduced by increasing the sample size. C) Causes partial slopes to differ from marginal slopes. D) Increases the RMSE of the fitted model. E) Implies that the model requires the addition of interactions. This study source was downloaded by 100000866393153 from CourseHero.com on 06-10-2023 11:34:36 GMT -05:00 https://www.coursehero.com/file/143698850/Final-Test-Make-uppdf/ Question-4 (15 pts): Please indicate your answer and explain your reasoning (or show your work for calculations): The response variable in the following regression gives the daily excess return on stock in McDonalds (Excess McDonalds). The single explanatory variable gives the daily excess return on the market, as measured by the value-weighted market index (ExcessVW). These data span 1985 through 2003. Summary of Fit RSquare 0.198916 Root Mean Square Error 0.015586 Mean of Response 0.000677 Observations (or Sum Wgts) 4794 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.0002343 0.000225 1.04 0.2988 ExcessVW 0.7872314 0.022822 34.49 <.0001* a) An important test of the capital asset pricing model (CAPM) is the test of H0: β0 =0. If we accept the assumptions of the simple regression model (SRM), these results show that A) We should reject H0 because the intercept is .0002343. B) We should conclude H0 is true because its p-value < 0.05. C) We should reject H0 because the t-ratio is 34.4. D) We should retain the possibility that H0 is true. E) The r-squared statistic is too small to permit testing H0. b) The population slope beta1 in this regression is often called the “beta” of the stock. If beta is 1 then the stock moves as the market moves (a 1% increase in the market predicts an average increase in McDonald’s stock by 1%). If we accept the assumptions of the SRM, these results imply that beta is a) Significantly different from 1 because the t-ratio is 34.4. b) Statistically significantly less than 1. c) Statistically significantly more than 1. d) Poorly estimated because we did not use excess returns on the S&P500. e) Unknown because of collinearity between excess returns on S&P500 and VW. c) For a day on which the excess return on the market is 2% (Excess VW = 0.02), the probability that the excess return on McDonalds is greater than zero is about a) 0.95 b) 0.84 c) 0.68 d) 0.32 e) 0.975 This study source was downloaded by 100000866393153 from CourseHero.com on 06-10-2023 11:34:36 GMT -05:00 https://www.coursehero.com/file/143698850/Final-Test-Make-uppdf/ Powered by TCPDF (www.tcpdf.org)
