Question

A financial analyst tested the performance of a security LV against the S&P 500 Index during 121 months of transactions. The figure below shows part of the output from a regression between the two sets of returns.

ANOVA
	df	SS	MS
Regression	1	0.080	0.080
Residual	120	0.107	0.000
Total	121	0.187
	Coefficients		Standard Error
Intercept	-0.001		0.003
S&P500	0.346		0.037

What is the estimated equation that corresponds to these results?

Find the R2 and provide a brief explanation about the meaning of your result.

Find the t-statistic for the coefficient of the intercept, and of the variable S&P500.

Give a 95% confidence interval for the coefficient for the variable S&P500.

What return for the security LV would be expected if S&P500’s return was 2.5%?

(Looking at both the specification of the model and at the estimated coefficient, how can you interpret the coefficient of S&P500?

Look at the following scatter plot of the residuals from the model. Is the linearity assumption violated by the estimated model? Justify your answer.

Answer 1