Question #11

of 139 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: 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, 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