Quant- Q15 schweser - CI of Y- pg 170

coldplay forecast the excess return on the SP for June 07 to be 5 percent and the 95 CI for the predicted value of the excess return on VIGRX for june 07 to be 3.9% to 7.7%. the standard error is closest to: a…0080 b.0093 c.0111 equation = EX VIGRX = BO + B1 (EX SP) + ERROR TERM B0= .0023 B1= 1.1163 Tcritical= 2.03 I am not getting this right now, please fill me in.

is the answer b? 0.0093?

CPK how did you get that? The SEs and the intervals are too different in scale to make sense unless somethings missing here. I cant see it.

You have to find the expected value for your VIGRX… and then apply the formula for confidence interval… i.e. [CI] = [expected value] +/- [Tcritical * std Error] You can find the expected value of 0.058 in 2 different ways: 1) by averaging the lower and upper bound of the interval given (.039+.077)/2 2) from the regression formula… Once you calculate the expect value, you can calculate the std error by replacing for the upper or lower bound of the CI. For example, the upper would be: 0.077 = 0.058 + 2.03 * std Error => std error = (0.077-0.058)/2.03 = 0.0099.

0.0023+1.1163(0.05)= Value Value+/- 2.03*(X)=0.039 on lower side, 0.077 on the higher side solve for X.

the answer is B indeed, just a slit up this afternoon.

Good job guys, guess i need to pay attention to more detail in quant. Scalability would be a problem if I was using 5 vs. 0.05. Jeez!