Question

A financial analyst tested the performance of a security LV against the S&P 500 Index during...

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.

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