Question #10
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 4
Status: Unattempted
Question
Consider the following estimated regression equation: AUTOt = 10.0 + 1.25 PIt + 1.0 TEENt – 2.0 INSt The equation was estimated over 40 companies. The predicted value of AUTO if PI is 4, TEEN is 0.30, and INS = 0.6 is closest to:
Answer Choices:
A. 14.90
B. 17.50
C. 14.10. Ben Sasse is a quantitative analyst at Gurnop Asset Managers. Sasse is interviewing Victor Sophie for a junior analyst position. Sasse mentions that the firm currently uses several proprietary multiple regression models and wants Sophie's opinion about regression models. Sophie makes the following statements: Statement 1: Multiple regression models can be used to forecast independent variables. Statement 2: Multiple regression models can be used to test existing theories of relationships among variables. Sasse then discusses a model that the firm uses to forecast credit spread on investment- grade corporate bonds. Sasse states that while the current model parameters are a secret
Explanation
Predicted AUTO
= 10 + 1.25 (4) + 1.0 (0.30) – 2.0 (0.6)
= 10 + 5 + 0.3 – 1.2
= 14.10
(Module 1.2, LOS 1.f)
Ben Sasse is a quantitative analyst at Gurnop Asset Managers. Sasse is interviewing Victor
Sophie for a junior analyst position. Sasse mentions that the firm currently uses several
proprietary multiple regression models and wants Sophie's opinion about regression
models.
Sophie makes the following statements:
Statement 1:
Multiple regression models can be used to forecast independent
variables.
Statement 2:
Multiple regression models can be used to test existing theories of
relationships among variables.
Sasse then discusses a model that the firm uses to forecast credit spread on investment-
grade corporate bonds. Sasse states that while the current model parameters are a secret,
the following is an older version of the model:
CSP = 0.22 + 1.04 × DSC – 0.32 × index + 1.33 × D/E
where:
CSP = credit spread (%)
DSC = EBITDA / unsecured debt
index = 1 if the issuer is part of CDX index; 0 otherwise
D/E = long-term debt / equity