Reading 11: Correlation and Regression - LOS d : Q1-5 class, market, black, between, white

mayanfang1

Q1. The covariance between stock A and the market portfolio is 0.05634. The variance of the market is 0.04632. The beta of stock A is:

A)   0.8222.

B)   0.0026.

C)   1.2163.

Q2. The purpose of regression is to:

A)     explain the variation in the dependent variable.

B)     get the largest R² possible.

C)     explain the variation in the independent variable.

Q3. The capital asset pricing model is given by: R_i =R_f + Beta ( R_m -R_f) where R_m = expected return on the market, R_f = risk-free market and R_i = expected return on a specific firm. The dependent variable in this model is:

A)   R_m - R_f.

B)   R_i.

C)   R_f.

Q4. The independent variable in a regression equation is called all of the following EXCEPT:

A)   predicting variable.

B)   explanatory variable.

C)   predicted variable.

Q5. Joe Harris is interested in why the returns on equity differ from one company to another. He chose several company-specific variables to explain the return on equity, including financial leverage and capital expenditures. In his model:

A)    return on equity is the independent variable, and financial leverage and capital expenditures are dependent variables

B)    return on equity is the dependent variable, and financial leverage and capital expenditures are independent variables.

C)    return on equity, financial leverage, and capital expenditures are all independent variables.

mayanfang1

Q1-3答案和详解如下：

Q1. The covariance between stock A and the market portfolio is 0.05634. The variance of the market is 0.04632. The beta of stock A is:

A)   0.8222.

B)   0.0026.

C)   1.2163.

Correct answer is C)

Beta = Cov(R_A,R_M) / Var(R_M) = 0.05634/0.04632 = 1.2163 = beta.

Q2. The purpose of regression is to:

A)     explain the variation in the dependent variable.

B)     get the largest R² possible.

C)     explain the variation in the independent variable.

Correct answer is A)

The goal of a regression is to explain the variation in the dependent variable.

Q3. The capital asset pricing model is given by: R_i =R_f + Beta ( R_m -R_f) where R_m = expected return on the market, R_f = risk-free market and R_i = expected return on a specific firm. The dependent variable in this model is:

A)   R_m - R_f.

B)   R_i.

C)   R_f.

Correct answer is B)

The dependent variable is the variable whose variation is explained by the other variables. Here, the variation in R_i is explained by the variation in the other variables, R_f and R_m.

mayanfang1

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mayanfang1

Q4-5答案和详解如下：

Q4. The independent variable in a regression equation is called all of the following EXCEPT:

A)   predicting variable.

B)   explanatory variable.

C)   predicted variable.

Correct answer is C)

The dependent variable is the predicted variable.

Q5. Joe Harris is interested in why the returns on equity differ from one company to another. He chose several company-specific variables to explain the return on equity, including financial leverage and capital expenditures. In his model:

A)    return on equity is the independent variable, and financial leverage and capital expenditures are dependent variables

B)    return on equity is the dependent variable, and financial leverage and capital expenditures are independent variables.

C)    return on equity, financial leverage, and capital expenditures are all independent variables.

Correct answer is B)

The dependent variable is return on equity. This is what he wants to explain. The variables he uses to do the explaining (i.e., the independent variables) are financial leverage and capital expenditures.

rettacui

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hitman1986

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rex629

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cyyap1011

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lenny_chen

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