Financial Regressiom Essay

3266 Words Jun 23rd, 2013 14 Pages
FINA 6204
Problem Set 1

The purpose of the assignment is to review basic hypothesis testing and regression techniques. There is an appendix in your textbook, Appendix C: Using Excel to Conduct Analysis, which may help you with running regressions in Microsoft Excel. You may also wish to use a basic statistics text for guidance if needed. I have also provided you with a table with the t distribution.

If you have an older version of EXCEL and have not previously loaded the Analysis ToolPak, go to TOOLS, ADD-INS, Analysis Tool Pak. This will load the regression software that you will need. Then go to TOOLS, DATA ANALYSIS, Regression. Now you are ready to run regressions in EXCEL. Alternatively, if you have the most recent
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The beta coefficient is the estimated coefficient for the independent or X variable, the excess rate of return for the market. (10 points)
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.86831328
R Square 0.75396796
Adjusted R Square 0.74029951
Standard Error 8.76947674
Observations 20

ANOVA
df SS MS F Significance F
Regression 1 4242.1018 4242.102 55.1612 6.945E-07
Residual 18 1384.267 76.90372
Total 19 5626.3688

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0.24635305 2.0982897 0.117407 0.907838 -4.1619901 4.654696 -4.16199 4.654696
Market 1.47503908 0.1986034 7.427059 6.95E-07 1.0577888 1.892289 1.057789 1.892289

Alpha is the intercept = 0.24635305
Beta Coefficient = 1.47503908
Excess Rate of Return (firm) = 0.24635305 + 1.47503908 X [Excess Of Return Market] – Residual Error

A beta of 1.47503908 implies the following: a 1% increase in the excess rate of return (market) suggests an increase of 1.47503908 % in the excess rate of return (firm).


1c. Assuming that the market return for the coming year is expected to be 12 percent and that the risk-free rate is expected to be 8 percent, use market model (your regression model) to estimate the expected rate of return to the firm’s shareholders for the coming year. (Hint: You will first need to calculate the expected…

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