Question #1 of 11 Question ID: 1456690
The estimated slope coefficient in a simple linear regression is:
the predicted value of the dependent variable, given the actual value of the
A)
independent variable.
the change in the independent variable, given a one-unit change in the
B)
dependent variable.
the ratio of the covariance of the regression variables to the variance of the
C)
independent variable.
Explanation
CovX,Y
The estimated slope coefficient in a simple linear regression is 2
, where Y is the
σ
X
dependent variable and X is the independent variable. The estimated slope coefficient is
interpreted as the change in the dependent variable, given a one-unit change in the
independent variable. The predicted value of the dependent variable must consider the
estimated intercept term along with the estimated slope coefficient.
(Module 7.1, LOS 7.b)
Question #2 of 11 Question ID: 1456696
Use the following t-table for this question:
Probability in Right Tail
df 5.0% 2.5% 1.0%
196 1.653 1.972 2.346
197 1.653 1.972 2.345
198 1.653 1.972 2.345
199 1.653 1.972 2.345
200 1.653 1.972 2.345
201 1.652 1.972 2.345
202 1.652 1.972 2.345
A sample of 200 monthly observations is used for a simple linear regression of returns
versus leverage. The resulting equation is:
returns = 0.04 + 0.894(Leverage) + ε
If the standard error of the estimated slope variable is 0.06, a test of the hypothesis that the
slope coefficient is greater than or equal to 1.0 with a significance of 5% should:
A) be rejected because the test statistic of –1.77 is less than the critical value.
B) be rejected because the test statistic of –1.77 is greater than the critical value.
not be rejected because the test statistic of –1.58 is not less than the critical
C)
value.
Explanation
The test statistic is (0.894 – 1.0) / 0.06 = –1.77. The critical value with 200 – 2 = 198 degrees
of freedom for 5% significance is –1.653. Because the test statistic of –1.77 is less than the
lower critical value, we reject the hypothesis that b1 is greater than or equal to 1.0.
(Module 7.2, LOS 7.f)
Question #3 of 11 Question ID: 1456692
The coefficient of determination for a linear regression is best described as the:
percentage of the variation in the dependent variable explained by the variation
A)
of the independent variable.
B) covariance of the independent and dependent variables.
percentage of the variation in the independent variable explained by the
C)
variation of the dependent variable.
Explanation
The coefficient of determination for a linear regression describes the percentage of the
variation in the dependent variable explained by the variation of the independent variable.
(Module 7.2, LOS 7.d)
Question #4 of 11 Question ID: 1456698
When there is a linear relationship between an independent variable and the relative change
in the dependent variable, the most appropriate model for a simple regression is:
A) the lin-log model.
B) the log-log model.
C) the log-lin model.
Explanation
A regression of the form ln Y = b0 + b1X is appropriate when the relative change in the
dependent variable is a linear function of the independent variable.
(Module 7.3, LOS 7.h)
Question #5 of 11 Question ID: 1456694
Consider the following analysis of variance (ANOVA) table:
Source Sum of squares Degrees of freedom Mean sum of squares
Regression 550 1 550.000
Error 750 38 19.737
Total 1,300 39
The F-statistic for the test of the fit of the model is closest to:
A) 0.97.
B) 27.87.
C) 0.42.
Explanation
F = sum of squares regression / mean squared error = 550 / 19.737 = 27.867.
(Module 7.2, LOS 7.e)
Question #6 of 11 Question ID: 1456691
Which of the following is least likely an assumption of linear regression?
A) Values of the independent variable are not correlated with the error term.
B) The error terms from a regression are positively correlated.
C) The variance of the error terms each period remains the same.
Explanation
One assumption of linear regression is that the error terms are independently distributed.
In this case, the correlations between error terms are expected to be zero. Constant
variance of the error terms and no correlation between the independent variable and the
error term are assumptions of linear regression.
(Module 7.1, LOS 7.c)
Question #7 of 11 Question ID: 1456695
Consider the following analysis of variance (ANOVA) table:
Source Sum of squares Degrees of freedom Mean sum of squares
Regression 556 1 556
Error 679 50 13.5
Total 1,235 51
The R2 for this regression is closest to:
A) 0.55.
B) 0.45.
C) 0.82.
Explanation
R2 = sum of squares regression / sum of squares total = 556 / 1,235 = 0.45.
(Module 7.2, LOS 7.e)
Question #8 of 11 Question ID: 1456689
In a simple regression model, the least squares criterion is to minimize the sum of squared
differences between:
A) the estimated and actual slope coefficient.
B) the predicted and actual values of the dependent variable.
C) the intercept term and the residual term.
Explanation
The least squares criterion defines the best-fitting linear relationship as the one that
minimizes the sum of squared errors, the squared vertical distances between the
predicted and actual values of the dependent variable.
(Module 7.1, LOS 7.b)
Question #9 of 11 Question ID: 1456697
Given the relationship: Y = 2.83 + 1.5X
What is the predicted value of the dependent variable when the value of the independent
variable equals 2?
A) –0.55.
B) 5.83.
C) 2.83.
Explanation
Y = 2.83 + (1.5)(2) = 2.83 + 3 = 5.83.
(Module 7.3, LOS 7.g)
Question #10 of 11 Question ID: 1456688
A simple linear regression is a model of the relationship between:
A) one or more dependent variables and one or more independent variables.
B) one dependent variable and one or more independent variables.
C) one dependent variable and one independent variable.
Explanation
A simple linear regression is a model of the relationship between one dependent variable
and one independent variable. A multiple regression is a model of the relationship
between one dependent variable and more than one independent variable.
(Module 7.1, LOS 7.a)
Question #11 of 11 Question ID: 1456693
A simple linear regression is performed to quantify the relationship between the return on
the common stocks of medium-sized companies (mid-caps) and the return on the S&P 500
index, using the monthly return on mid-cap stocks as the dependent variable and the
monthly return on the S&P 500 as the independent variable. The results of the regression
are shown below:
Coefficient Standard Error of Coefficient t-Value
Intercept 1.71 2.950 0.58
S&P 500 1.52 0.130 11.69
Coefficient of determination = 0.599
The strength of the relationship, as measured by the correlation coefficient, between the
return on mid-cap stocks and the return on the S&P 500 for the period under study was:
A) 0.774.
B) 0.599.
C) 0.130.
Explanation
We are given the coefficient of determination of 0.599 (R2) and are asked to find the
correlation coefficient (r), which is the square root of the coefficient of determination for a
simple regression:
√0.599 = 0.774
(Module 7.2, LOS 7.d)
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