Question 2:
Regression model coefficients:
Constant: -.0069
S&P 500: .3625
SPREAD: 1.0264
What is the regression? From the answer it is
-.0069% + SPREAD value x 1.0264 + S&P500 value x .3625
How did we know to treat the coefficient as a percentage when all the other coefficients weren’t?
I got the question right by guessing, but my answer was way off because I was looking at it like this:
.0069 + SPREAD value x 1.0264 + S&P500 value x .3625
(fist) *bump*
bumping again, anyone?
You will get the same answer as long as you scale everything appropriately. By them stating a 1.5% increase they are telling you 1.5 per 100. If you want to use 1.5%*1.0264 (and -1%* other coeffcient), you need to be consistent in your treatment of the intercept. You would just add the intercept with the other parts (because everything is already in percentages).
If you wanted to use 0.015 (convert 1.5% to decimal), you need to divide the intercept by 100% as well before adding it.
Try it and you will see you arrive at the same answer, given that you use appropriate units of measure.