The results of a regression analysis quantifying the affect of the S&P 500 index return on small company stock returns is shown below: Standard Standard Coefficient Error t-value Intercept 1.71 2.95 0.58 S&P 500 1.52 0.13 11.69 The t-statistic critical value at the .01 level is 2.66 Residual standard error = 19.85 Multiple R-square = .5991 N = 75 F-value = 101.465 on 1, 73 degrees of freedom Based on the regression statistics above, what is the expected return on small stocks if the return on the S&P 500 is 3%? a. 4.56% b. 5.13% c. 6.27% d. 9.69% ------------------ This is a question from passmaster.
firstly write out exactly what the regression equation is: k = 1.71 + 1.52(S&P) so, if the return on the S&P is expected to be 3, then just sub it in… the expected return on the stock, k, is: k = 1.71 +1.52(3) = 6.27 (Ans C)
Wow, at a glance that question looks much more intense.