Question #27

Reading: Reading 1 Multiple Regression

PDF File: Reading 1 Multiple Regression.pdf

Page: 12

Status: Unattempted

Part of Context Group: Q26-27
Shared Context
- The model better suited for prediction is: A) Model 1 because it has a lower Bayesian information criterion. B) Model 2 because it has a higher Akaike information criterion. C) Model 2 because it has a lower Akaike information criterion.
Question
What is the predicted return for a stock using Model 1 when SMB = 3.30, HML = 1.25 and Rm-Rf = 5?
Answer Choices:
A. 6.80%
B. 7.88%
C. 9.58%
Explanation
Model 1: Return = 1.22 + 0.23 × SMB + 0.34 × HML + 0.88 Rm-Rf = 1.22 + 0.23 × 3.30 + 0.34 × 1.25 + 0.88 × 5 = 6.80%.
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