Question

Multiple regression was used to explain stock returns using the following variables:

• Dependent variable:

RET = annual stock returns (%)

• Independent variables:

MKT = market capitalization (per million $)

IND = industry quartile ranking (IND = 4 is the highest ranking)

FORT = Fortune 500 firm, where FORT = 1 if the stock is that of a Fortune 500

firm, and FORT = 0 if not a Fortune 500 stock.

The regression results are presented in the table below:

	Coefficient	Std Error	t-statistic	P-Value
Intercept	0.5220	1.2100	0.430	0.681
Market capitalization	0.0460	0.0150	3.090	0.021
Industry Ranking	0.7102	0.2725	2.610	0.040
Fortune 500	0.900	0.5281	1.700	0.139

(a) Based on the results in the table, which of the following most accurately represents the (5)

regression equation? Justify your answer.

A. 0.43 + 3.09(MKT) + 2.61(IND) + 1.70 (FORT)

B. 0.681 + 0.021(MKT) + 0.041(IND) + 0.139 (FORT)

C. 0.522 + 0.046(MKT) + 0.7102(IND) + 0.9 (FORT)

D. 1.21 + 0.015(MKT) + 0.2725(IND) + 0.5281 (FORT)

Answer 1

e regression results are presented in the table below:

	Coefficient	Std Error	t-statistic	P-Value
Intercept	0.522	1.2100	0.430	0.681
Market capitalization	0.046	0.0150	3.090	0.021
Industry Ranking	0.7102	0.2725	2.610	0.040
Fortune 500	0.9	0.5281	1.700	0.139

Intercept = 0.522

Coefficient of Market Capitalization, MKT= 0.046

Coefficient of Industry Ranking, IND = 0.7102

Coefficient of Fortune 500, FORT= 0.7102

The regression is given as Y(Stock returns) = Intercept + Coefficient of MKT* MKT + Coefficient of IND * IND + Coefficient of FORT * FORT

Y(Stock returns) = 0.522 + 0.046 * MKT + 0.7102 * IND + 0.9 * FORT

Therefore , the right option is C.