91672018 Learning Management System Question #1 of 191 Which of the following statements regarding multicollinearity is feast accurate? A) Multicollinearity may be a problem even if the multicollinearity is not perfect. B) Multicollinearity may be present in any regression model. ) If the tstatisties for the individual independent variables are insignificant, yet the F- statistic is significant, this indicates the presence of multicollinearity. ‘An analyst is interested in forecasting the rate of employment growth and instability for 254 ‘metropolitan areas around the United States. The analyst's main purpose/for these forecasts is to estimate the demand for commercial real estate in each metro afea. The independent variables in the analysis represent the percentage of employmeént in'each industry group. Regression of Employment Growth Rates and Employment Instabi on Industry Mix Variables for 254 U.S. Metro Areas Model 1 Model 2 : Employment)” Relative Employment Dependent Variable | ¢owih Rate Instability Independent Coefficient Coefficient Variabl tvalue tvalue ariables Estimate Estimate Intercept 3913 3.4626 0.623 we Consir en 0.2219 4491 0.1715 2.096 Employment % Manufacturing 0.0136 0.393 0.0037 0.064 Employment % Wholesale Trade 0092 0.0244 0.275 Employment 96 Retall Trade 0012 0365 | -0.578 Employment % Financial Services | 9 g¢os 1271 -0.0344 | -0.437 Employment 9% Other Services 0.1037 2.792 0.0208 0.338 intphw kaplanleam comleducaton/daehboardindex/84eaSH72da229Sate tbsba8200757lpracice/qbank!22036 139/quii80833002%prnt ‘19891672018 Learning Management System Employment Re 02R0 ana7 Adjusted R? 0,272 0.024 FStatistic 16.791 2.040 Standard error of 0546 0345 estimate Question #2 of 191 Based on the data given, which independent variables have both a statistically ahd &n, economically significant impact (at the 5% level) on metropolitan employment growth rates? A) "% Manufacturing Employment," "% Financial Services Employmient,"% Wholesale Trade Employment," and "ye Ketall Trade” only. B) "% Construction Employment” and "% Other Services Employment" only. ©) °% Wholesale Trade Employment" and "% Retail Trade only. Question #3 of 191 The coefficient standard errorfor the independent variable "% Construction Employment" under the relative employment instability model is closest to: A) 0.3595. B) 2.2675. ¢) 0.0818. Question #4 of 191 Which of the following best describes how to interpret the R? for the employment growth rate model? Changes in the value of the: A) independent variables explain 28.9% of the variability of the employment growth rate. hes: kaplanleam comleducation|sashboardindex!84eaSH7.da0205afSe 1bb3a8200757 practicel¢bank’23025 120/que/@0533902%print 2iee91672018 B) independent variables cause 28.9% of the variability of the employment growth rate. ©) employment growth rate explain 22.9% af the variability of the independent variables. Question #5 of 191 Using the following forecasts for Cedar Rapids, iowa, the forecasted employment growth rate for that city is closest to: Learning Management System Construction employment | 10% Manufacturing 30% Wholesale trade 5% Retail trade 20% Financial services 15% Other services 20% A) 5.54%, B) 3.15%. ©) 3.22%. Question #6 of 191 The 95% confidence interval for the coefficient estimate for "% Construction Employment" from the relative employment instability model is closest to: A) -0.0740 to 0.4170. B) 0.0897 to 0.2533. ©) 0.0111 0.3319. Question #7 of 191 hes: kaplanleam comleducation|sashboardindex!84eaSH7.da0205afSe 1bb3a8200757 practicel¢bank’23025 120/que/@0533902%print 218891672018 Leaming Management System One possible problem that could jeopardize the validity of the employment growth rate model is multicollinearity. Which of the following would most likely suggest the existence of, multicollinearity? A) The F-statistic suggests that the overall regression is significant, however the regression coefficients are not individually significant. B) The variance of the observations has increased over time. €) The Durbin-Watson statistic differs sufficiently from 2. Question #8 of 191 Jill Wentraub is an analyst with the retail industry. She is modelingia. company's sales over time and has noticed a quarterly seasonal pattern. ifshe includes durrimy Variables to represent the seasonality component of the sales she must use: A) one dummy variables. B) three dummy variables. ©) four dummy variables. Question #9 of 191 Which of the following statements about the Fstatistic is /east accurate? AA) Rejecting the null hypothesis means that only one of the independent variables is statistically significant. B) F= MSR/MSE. ©) dfnumerator = K and dfdenominator =~ K~ 1. Question #10 of 191 hes: kaplanleam comleducation|sashboardindex!84eaSH7.da0205afSe 1bb3a8200757 practicel¢bank’23025 120/que/@0533902%print 48891672018 Leaming Management System David Black wants to test whether the estimated beta in a market model is equal to one. He collected a sample of 60 monthly returns on a stock and estimated the regression of the stock's returns against those of the market. The estimated beta was 1.1, and the standard error of the coefficient is equal to 0.4, What should Black conclude regarding the beta if he uses a 5% level of significance? The null hypothesis that beta is: A) equal to one cannot be rejected. B) equal to one is rejected. ©) not equal to one cannot be rejected. Question #11 of 191 ‘An analyst is estimating whether a fund's excess return for a quarter Isrelated to interest rates and last quarter's excess return. The model residuals exhibit Unconditional heteroskedasticity The model residuals exhibit uncondi nal heteroskedasticity and serial correlation due to inclusion of lagged dependent variable. Which cf the follovving is most accurate? Parameter estimates for the regression model of excess retlirns oh interest rates and prior quarter's excess returns will be: A) accurate but statist inference about the parameters will not be valid. B) inaccurate but statis infer eyce about Uie parainieters will be vali © inaccurate and statistical inference about the parameters will not be valid. Question’ #12 of 191 hes: kaplanleam comleducation|sashboardindex!84eaSH7.da0205afSe 1bb3a8200757 practicel¢bank’23025 120/que/@0533902%print 58891672018 Learning Management System Wanda Brunner, CFA, is trying to calculate a 95% confidence interval (df = 40) for a regression equation based on the following information: Coefficient Standard Error Intercept -10.60% 1,357 DR 0.52 0.023 cs 0.32 0.025 What are the lower and upper bounds for variable DR? A) 0.488 to 0.552, B) 0.481 to 0.559. ©) 0.474 to 0.566. In preparing an analysis of HB Inc,, Jack Stumper is asked tollooK\at the company's sales in relation lo broad based economic indicators. Sumper’s analysis indicates Uhat HB's inonthly sales are related to changes in housing starts (H) and chahges in the mortgage interest rate (M), ‘The analysis covers the past ten years for these Variables, The regression equation is: S=1.76 +0.23H -0.08M Number of Ke observation: Unadjusted R?: 0.77 F statistic: 9.80 Durbin Watson statistic | 0.50 p-value of Housing Starts 0.017 t-stat of Mortgage 26 Rates " Variable Descriptions 5 - HB Sales (in thousands) H= housing starts (in thousands) M= mortgage interest rate (in percent) inte: kaplanloam comeducatonidaehboardindex/84eaSH72da229Sa6ebsb3a8200757lpracice/qbank!22036 139/quii80833002%prnt eee91672018 Learning Management System November 20x6 Actual Data HB's monthly sales: $59,000 Housing starts: 150,000 Mortgage interest rate (96): 7.5 Critical Values for Student's t-Distribution Level of significance for one-tailed test Degrees of | 10% 5% 2.5% 1% 0.5% | 0.05% Freedom Level of significance for two-tailed test 20% 10% 5% 2% 1% 0.1% 10 1.372 | 1.812 | 2228 | 2.764} 3.169 | 4.587 20 1.325 | 1.725 | 2086 | 2528\)°2.845 | 3.850 30 1.310 | 1.697 | 2042 | 2457 | 2.750 | 3.646 40 1,303 1.684, 2.021 2.423 2.704 3.551 120 1.289 | 1.658 | 1980°| 2358 | 2617 | 3.373 Question #13 of 191 Using the regression model déveloped, the closest prediction of sales for December 20x6 is: ‘A) $55,000 B) $44,000 ©) $36,000 Question #14 of 191 Will Stumper conclude that the housing starts coefficient is statistically different from zero and, how will he interpret it at the 5% significance level: A) not different from zero; sales will rise by $0 for every 100 house starts B) different from zero; sales will rise by $23 for every 100 house starts hes: kaplanleam comleducation|sashboardindex!84eaSH7.da0205afSe 1bb3a8200757 practicel¢bank’23025 120/que/@0533902%print 78891672018 Learning Management System ©) different from zer‘ ales will rise by $100 for every 23 house starts Question #15 of 191 Is the regression coefficient of changes in mortgage interest rates different from zero at the 5 percent level of significance? A) yes, because 2.6 > 2.23, B) no, because 2.6 < 2.62 ©) yes, because 2.6 > 1.98 Question #16 of 191 In this multiple regression, the F-statistic indicates the: AA) the joint significance of the independent variables B) deviation of the estimated values'frofm the actual values of the dependent variable €) degree of correlation between the Independent variables Question #17-of 191 The regression Statistics above indicate that for the period under study, the independent variables (housing starts, mortgage interest rate) together explained approximately what percentage o the variation in the dependent variable (sales)? A) 9.80 B) 77.00 ©) 67.00, hes: kaplanleam comleducation|sashboardindex!84eaSH7.da0205afSe 1bb3a8200757 practicel¢bank’23025 120/que/@0533902%print eee91672018 Learning Management System Question #18 of 191 In this multiple regression, if Stumper discovers that the residuals exhibit positive serial correlation, the most likely effect is? A) standard errors are too high but coefficient estimate Is consistent. B) standard errors are too low but coefficient estimate is consistent. ©) standard errors are not affected but coefficient estimate is inconsistent. Question #19 of 191 ‘An analyst runs a regression of portfolio returns on three independent vafiables. These independent variables are price-to-sales (P/5), price-to-cash flow (P/CK), and price-to-book (PB). ‘The analyst discovers that the p-values for each independent.variablé are relatively high. However, the F-test has a very small p-value. The analyst is puzzled and tries to figure out how the F-test can be statistically significant when the individual independent variables are not significant, What violation of regression analysis aS oecurred? A) conditional heteroskedasticity. B) serial correlation. ©) multicollinearity. Toni Williams, CFAyhas determined that commercial electric generator sales in the Midwest U.S. for Self-Start Cémpahy is a function of several factors in each area: the cost of heating oil, the temperature, snowfall, and housing starts. Using data for the most currently available year, she runs a cross-sectional regression where she regresses the deviation of sales from the historical average in each area on the deviation of each explanatory variable from the historical average of that variable for that location, She feels this is the most appropriate method since each ‘geographic area will have different average values for the inputs, and the model can explain how current conditions explain how generator sales are higher or lower from the historical average in each area. In summary, she regresses current sales for each area minus its respective historical average on the following veriables for each area, The difference between the retail price of heating oil and its historical average. ‘© The mean number of degrees the temperature is below normal in Chicago. inte: kaplanloam comeducatonidaehboardindex/84eaSH72da229Sa6ebsb3a8200757lpracice/qbank!22036 139/quii80833002%prnt 98891672018 Learning Management System ‘+ The amount of snowfall above the average. ‘The percentage of housing starts above the average. Williams used a sample of 26 observations obtained from 26 metropolitan areas in the Midwest, USS. The results are in the tables below. The dependent variable is in sales of generators in millions of dollars. Coefficient Estimates Table Variable Estimated Coefficient | Standard Error of the Coefficient Intercept 5.00 1.850, $ Heating Oil 2.00 0.827 Low Temperature 3.00 7.200 Snowfall 10.00 4.833 Housing Starts 5.00 2.333 Analysis of Variance Table (ANOVA) Source _| Degrees of Freedom | Sum of Squares| Mean Square Regression 4 335,20 83.80 Error 24 606.40 28.88 Total 25 941.60 One of her goals is to foretast the sales of the Chicago metropolitan area next year. For that orca and for the upcoming year, Williams obtains the following projections: heating oll prices will be $0.10 above average, the temperature in Chicago will be 5 degrees below normal, snowfall will Be-3\inches above average, and housing starts will be 3% below average. In addition to making forecasts and testing the significance of the estimated coefficients, she plans to perform diagnostic tests to verify the validity of the mode's results. Question #20 of 191 According to the model and the data for the Chicago metropolitan area, the forecast of generator sales is: A) $65 million above the average. B) $35.2 million above the average. inte: kaplanleam comleducatonidaehboardindexi84eaSH72da229Sat6e 1bsb3a8200757lpractie/qbank!22006 139/quli80633002%prnt91672018 Learning Management System ©) $55 million above average. Question #21 of 191 Williams proceeds to test the hypothesis that none of the independent variables has significant explanatory power. He concludes that, at a 5% level of significance: A) all of the independent variables have explanatory power, because the calculated F- statistic exceeds its critical valuc. B) none of the independent variables has explanatory power, because the calculated F- statistic does not exceed its critical value. ©) at least one of the independent variables has explanatory power, because the calculated F-statistic exceeds its critical value, Question #22 of 191 With respect to testing the validity of the models results, Williams may wish to perform: A) a Durbin-Watson test, but not a Breusch-Pagan test. B) both a Durbin-Watson test and a Breusch-Pagan test. ©) a Breusch-Pagan test but not a Durbin-Wetson test. Question #23 of 191 Williams decides to use two-tailed tests on the individual variables, at a 5% level of significance, to determine whether electric generator sales are explained by each of them individually. Williams concludes that: A) all of the variables except snowfall are statistically significant in explaining sales. B) all of the variables except snowfall and housing starts are statistically significant in explaining sales. ©) all of the variables are statistically significant in explaining sales. inte: kaplanloam comeducatonidaehboardindex/84eaSH72da229Sa6ebsb3a8200757lpracice/qbank!22036 139/quii80833002%prnt wee91672018 Learning Management System Question #24 of 191 When Williams ran the model, the computer said the R?is 0.233. She examines the other output and concludes that this is the: A) adjusted R2 value. B) neither the unadjusted nor adjusted R? value, nor the coefficient of correlation. © unadjusted R2 value, Question #25 of 191 In preparing and using this model, Williams has east likely relled’on wihich of the following assumptions? ‘A) The disturbance or error term is normally distributed B) The residuals are homoscedastic. ©) There is a linear relationship between the independent variables. Question #26 of 191 When interpretingthe results of a multiple regression analysis, which of the following terms represents the value of the dependent variable when the independent variables are all equal to zero? A) p-value. B) Slope coefficient. ©) Intercept term. Question #27 of 191 intpe:ivm kaplanloam comleducaton/daehboardindex/84ea5H73da229SatSe bsb3a8200757lpracice/qbank!22095 199/quii80833002%prnt 1218091672018 Leaming Management System ‘An analyst is trying to determine whether stock market returns are related to size and the ‘market-to-book ratio, through the use of multiple regression. However, the analyst uses returns of portfolios of stocks instead of individual stocks in the regression, Which of the following is a valid reasan why tha analyct ices pnrtfnline? The sca nf pnrtfoline A) will remove the existence of multicollinearity from the data, reducing the likelihood of type Il error. B) reduces the standard deviation of the residual, which will increase the power of the test. €) will increase the power of the test by giving the test statistic more degrees of freedom, George Smith, an analyst with Great Lakes Investments, has created a comprehensive report on the pharmaceutical industry at the request of his boss. The Great lakes\gortfolio currently has a significant exposure to the pharmaceuticals industry throughs large equity position in the top two pharmaceutical manufacturers. His boss requestedithat'Smith determine a way to accurately forecast pharmaceutical sales in order for Gréat Lakes to identify further investment opportunities in the industry as well as to minimize theiexposure to downturns in the market. Smith realized that there are many factors that.could possibly have an impact on sales, and he must identify a method that can quantify their effect. Smith used a multiple regression analysis with five independent variables to predictindustry sales. His goal is to not only identify relationships that are statistically significant, but economically significant as well. The assumptions of his model are fairly standard: a linear relationship exists between the dependent and independént variables, the independent variables are not random, and the expected value of the'error term is zero, Smith is confidéatwith the results presented in his report. He has already done some hypothesis'testing for statistical significance, including calculating a t-statistic and conducting a two-tailed test where the null hypothesis is that the regression coefficient is equal to zero versus the alternative that itis not. He feels that he has done a thorough job on the report and is ready to answer any questions posed by his boss. However, Smith's boss, John Sutter, is concerned that in his analysis, Smith has ignored several potential problems with the regression model that may affect his conclusions. He knows that when any of the basic assumptions of a regression model are violated, any results drawn for the model are questionable, He asks Smith to go back and carefully examine the effects of heteroskedasticity, multicollinearity, and serial correlation on his model. In specific, he wants hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print aV8e91672018 Leaming Management System Smith to make suggestions regarding how to detect these errors and to correct problems that he encounters. Question #28 of 191 ‘Suppose that there is evidence that the residual terms in the regression are positively correlated. The most likely effect on the statistical inferences drawn from the regressions results is for Smith to commit a: A) Type Il error by incorrectly failing to reject the null hypothesis that the regression parameters are equal to zero, B) Type | error by incorrectly rejecting the null hypotheses that the regression parameters are equal to zero. ©) Type | error by incorrectly failing to reject the null hypothesis'thatthe regression parameters are equal to zero. Question #29 of 191 Sutter has detected the presence of conditional heteroskedasticity in Smith’s report. This is evidence that: ‘A) two or more of the independent variables are highly correlated with each other. B) the variance of the efor term is correlated with the values of the independent variables. ©) the error terms are correlated with each other. Question #30 of 191 ‘Suppose there is evidence that the variance of the error term is correlated with the values of the independent variables. The most likely effect on the statistical inferences Smith can make from the regressions results is to commit a: A) Type | error by incorrectly rejecting the null hypotheses that the regression parameters are equal to zero. Iitesshiwu kaplanieam conveducstion|seshcoardindex8¢eaSh7.da205afSe ibaG290757 practice/gbank’23035130iqui/@0533902%print ai8e91672018 Leaning Management System B) Type | error by incorrectly failing to reject the null hypothesis that the regression parameters are equal to zero. ©) Type Il error by incorrectly failing to reject the null hypothesis that the regression parameters are equal w zero. Question #31 of 191 Which of the following Is most likely to indicate that two or more of the independent variables, or linear combinations of independent variables, may be highly correlated with each other? Unless otherwise noted, signiticant and insignificant mean signiticantly difterentfrom zero and not significantly different from zero, respectively. A) The R? is low, the F-statistic is insignificant and the Durbin-WatSon statistic is significant. B) The R? is high, the F-statistic is significant end the t-statistics on the individual slope coefficients are significant. ©) The R? is high, the F-statistic is significant an@'thett-statistics on the individual slope coefficients are insignificant. Question #32 of 191 Suppose there is eviderice that two or more of the independent variables, or linear combinations of independent variables, may be highly correlated with each other. The most likely effecton the statistical inferences Smith can make from the regression results is to commit a: A) Type Il error by incorrectly failing to reject the null hypothesis that the regression parameters are equal to zero. B) Type | error by incorrectly rejecting the null hypothesis that the regression parameters are equal to zero. ©) Type | error by incorrectly falling to reject the null hypothesis that the regression parameters are equal to zero. hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print 198291672018 Question #33 of 191 Using the Durbin-Watson test statistic, Smith rejects the null hypothesis suggested by the test. This is evidence that: A) the error terms are correlated with each other. B) two or more of the independent variables are highly correlated with each other. ©) the crror term is normally distributed. Dave Tumer is a security analyst who is using regression analysis to determine howwell two factors explain returns for common stocks. The independent variables are thé'aatural logarithm of the number of analysts following the companies, Ln(no. of affalysts), and the natural logarithm of the market value of the companies, La(market value).‘The regression output generated from a statistical program is given in the following tables. Each p-value corresponds to a two-tail test. Turner plans to use the result in the analysis of two investments. WLK Corp. has twelve analysts following it and a market capitalization of $2.33 billion, NGR Corp. has two analysts following it and a market capitalization of $47 million. Table 1: Regression Output Intercept 0.043 0.01159 3.71 < 0.001 Lr(No. of poaivan) 0.027 0.00466, 5.0 | <0.001 Ln(Market 0.006 0.00271 2.21 0.028 Value) Table 2: ANOVA Regression 2 0.103 0.051 Residual 194 0.559 0.003 Total 196 0.662 npn kaplanleam comleducatonidashboardindexi84eastT73da229Sat8e1bsb’a6200757lpracielqank’23035139/quie/80833002%pxnt r618e91672018 Learning Management System Question #34 of 191 Ina one-sided test and a 1% level of significance, which of the following coefficients is, significantly different from zero? A) The intercept and the coefficient on In(no. of analysts) only. B) The coefficient on In(no. of Analysts) only. ©) The intercept and the coefficient on In(market value) only. Question #35 of 191 The 95% confidence interval (use a t-stat of 1.96 for this question onlyYofithe estimated coefficient for the independant variable Ln(Market Value) Is closest t0; A) -0.018 to -0.036 B) 0.011 to 0.001 ©) 0.014 to -0.009 Question #36 of 191 Ifthe number of analysts dn NGR Corp. were to double to 4, the change in the forecast of NGR would be closest to? A) ~0.055. B) -0.019. ©) -0.035, Question #37 of 191 Based on a R? calculated from the information in Table 2, the analyst should conclude that the number of analysts and In(market value) of the firm explain: hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print ‘8891672018 Learning Management System A) 18.4% of the variation in returns. B) 84.4% of the variation in returns. ©) 15.6% of the variation in returns. Question #38 of 191 What is the F-statistic from the regression? And, what can be concluded from its value at a 1% level of significance? A) F~ 5.80, reject a hypothesis that both of the slope coefficients are equdhtozero, B) F= 1.97, fail to reject a hypothesis that both of the slope coefficients’are equal to zero. €) F= 17.00, reject a hypothesis that both of the slope coefficients ate equal to zero. Question #39 of 191 Upon further analysis, Turner concludes thabmulticollinearity is a problem. What might have prompted this further analysis and what is.intuition behind the conclusion? A) At least one of the f-statisties was not significant, the F-statistic was not significant, and a positive relationship between the number of analysts and the size of the firm would B) At least one of thé'estatistics was not significant, the F-statistic was significant, and an intercept notssignificantly different from zero would be expected. ©) At leastone OF the e-statistics was not significant, the F-statistic was significant, and a positive relationship between the number of analysts and the size of the firm would be Question #40 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print eee91672018 Leaming Management System Seventy-two monthly stock returns for a fund between 2007 and 2012 are regressed against the market return, measured by the Wilshire 5000, and two dummy variables, The fund changed managers on January 2, 2010. Dummy variable one is equal to 1 if the return is from a month hetween 2010 and 2013 Dummy variahle number hun ic equal ta 1 if tha return i fram the second half of the year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also equals 0. The following are the estimated coefficient values and standard errors of the coefficients. Market 1.43000 0.319000 Dummy 1 0.00162 0.000675 Dummy 2 -0.00132 0.000733 What is the p-value for a test of the hypothesis that the new managér outperformed the old manager? A) Lower than 0.01 B) Between 0.05 and 0.10. ©) Between 0.01 and 0.05. Question #41 of 191 Which of the following statements regarding serial correlation that might be encountered in regression analysiés Jeast accurate? A) Serial correlation does not affect consistency of regression coefficients. B) Positive serial correlation and heteroskedesticity can both lead to Type | errors. ©) Serial correlation occurs least often with time series data. Question #42 of 191 1m comieducatonidashooardindexi8seastT73da229Sat8e1bsb’a8200757lpracice/qank’230351391qule/0833002%pxnt 198891672018 Leaming Management System ‘An analyst runs a regression of monthly value-stock returns on five independent variables over 48 months. The total sum of squares is 430, and the sum of squared errors is 170. Test the null hypothesis at the 2.5% and 5% significance level that all five of the independent variables are equial to 7er0 A) Rejected at 2.5% significance and 5% significance. B) Not rejected at 2.5% or 5.0% significance. © Rejected at 5% significance only. Damon Washburn, CFA, is currently enrolled as a part-time graduate student at State, University. One of his recent assignments for his course on Quantitative Analysis isto perform a regression analysis utilizing the concepts covered during the semester| Hé must interpret the results of the regression as well as the test statistics. Washburn is @énfident in his ability to calculate the statistics because the class is allowed to use statistical'software. However, he realizes that the interpretation of the statistics will be the trie test of his knowledge of regression analysis. His professor has given to the studénts list of questions that must be answered by the results of the analysis. Washburn has estimated a regression equatfoniin Which 160 quarterly returns on the S&P 500 are explained by three macroeconomievariablés: employment growth (EMP) as measured by nonfarm payrolls, gross domestic product (GDP) growth, and private investment (INV). The results of the regression analysis.ate a8 follows: Intercept 9.50 3.40 EMP -4.50 1.25 cpp 4.20 0.76 INV -0.30 0.16 Other Data: + Regression sum of squares (RSS 167.00 Sum of squared errors (SSE) ‘* Durbin-Watson statistic (DW) = 1.34 npn kaplanieam comieducationidashooardindexi8seastT72da229SatSebsb’a8200757lpractice/qpank/230351391qui/805330021pxnt 2018891672018 LLeaming Management System 3 1.638 2.353 3.182 4.541 5.841 10 1.372 1.812 2.228 2.764 3.169 50 1.299 1.676 2.009 2.403 2.678 100 1.290 1.660 1.984 2.364 2.626 120 1.289 1.658 1.980 2.358 2.617 200 1.286 1.653 1.972 2.345 2.601 20 =| 1.20 | 1.41 | 1.10 | 1.54 | 1.00 | 1.68 }/0,90 | 1.83 | 0.79 | 1.99 50 | 1.50 | 1.59 | 1.46 | 1.63 | 1.42) 1.67-} 1.38 | 1.72 | 1.34 | 1.77 >100 | 1.65 | 1.69 | 1.63 | 1.72 | 1.61 })1.74 | 1.59 | 1.76 | 1.57 | 1.78 Question #43 of 191 How many of the three indepéndént variables (not including the intercept term) are statistically significant in explaining quarterly stock returns at the 5.0% level? ‘A) One of the three Is statistically significant. B) Two of the three are statistically significant. © All three are statistically significant. Question #44 of 191 Can the null hypothesis that the GDP growth coefficient is equal to 3.50 be rejected at the 1.0% confidence level versus the alternative that itis not equal to 3.50? The null hypothesis is A) accepted because the t-statistic is less than 2.617. npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt 28891672018 Learning Management System B) rejected because the t-statistic is less than 2.617. €) not rejected because the t-statistic is equal to 0.92. Question #45 of 191 The percentage of the total variation in quarterly stock returns explained by the independent variables is closest to: A) 32%. By 42%, ©) 47%. Question #46 of 191 According to the Durbin-Watson statistic, there & A) significant heteroskedasticity in the residuals. B) no significant positive serial cortelation in the residuals. ©) significant positive serial c6rtelation in the residuals. Question: #47 of 191 What is the predicted quarterly stock return, given the following forecasts? + Employment growth = 2.0% © GDP growth = 1.0% 1.0% Private investment growth A) 4.7%. B) 5.0%. ©) 4.4%. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print 228891672018 LLeaming Management System Question #48 of 191 What is the standard error ot the esumate? A) 131. B) 0.81. O17 Question #49 of 191 ‘Wilson estimated a regression that produced the following analysiSOf Variance (ANOVA) table: Regression 100 1 100.0 Error 300 40 7.5 Total 400 41 ‘The values of R? and the F-statisti¢ forthe fit of the model are: A) R? = 0.20 and F = 13.333. B) R2=0.25 and 02930. ©) R? - 0.25 arid P=13.333. Question #50 of 191 npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt 289162018 Leaming Management System Test the statistical significance of the independent variable change in oil prices (OIL) on quarterly EPS of SG Inc. (dependent variable). The results of the regression are shown below. Intercept 2.02 1.65 ot 0.25 0.18 Number of observations = 45 A) The slope coefficient is statistically significant at 10% level of significance but not at 5% level of significance. B) The slope coefficient Is not statistically significant at 10% level of significance. ) The slope coefficient is statistically significant at 5% level of significance. Question #51 of 191 Suppose the analyst wants to add a dummy variable for whether a person has an undergraduate college degree and a graduate'Wegree. What is the CORRECT representation if a person has both degrees? Undergraduate Graduate Degree Degree Dummy. Dummy. Variable Variable Ad 1 Do 1 oo oO Question #52 of 191 1m comieducatonidashooardindexi8seastT73da229Sat8e1bsb’a8200757lpracice/qank’230351391qule/0833002%pxnt 2891672018 Leaming Management System ‘An analyst is estimating whether a fund's excess return for a month is dependent on interest rates and whether the S&P 500 has increased or decreased during the month. The analyst collects 90 monthly return premia (the return on the fund minus the return on the S&P 500 henchmarld, @f manthly intarast rates, ancl GA monthly SRP SAN inex ranirns from July 1999 te December 2006. After estimating the regression equation, the analyst finds that the correlation between the regressions residuals from one period and the residuals from the previous period is 0.199, Which of the following is most accurate at a 0.05 level of significance, based solely on the information provided? The analyst: A) cannot conclude that the regression exhibits either serial correlation or multicollinearity. B) can conclude that the regression exhibits serial correlation, but cannot'eonclude that the regression exhibits multicollinearity ©) can conclude that the regression exhibits multicollinearity, but Cannot conclude that the regression exhibits serial correlation. Question #53 of 191 ‘The management of a large restaurant thain) believes that revenue growth is dependent upon the month of the year. Using a standard'42 month calendar, how many dummy variables must be used in a regression model thar Will test whether revenue growth differs by month? A) 13. B) 11. 12 Question #54 of 191 Which of the following conditions will east likely affect the statistical inference about regression parameters by itself? A) Unconditional heteroskedasticity. B) Conditional heteroskedasticity. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print 28891672018 Learning Management System © Multicollinearity. Question #55 of 191 A dependent variable is regressed against three independent variables across 25 observations. ‘The regression sum of squares is 119.25, and the total sum of squares is 294.45, The following are the estimated coefficient values and standard errors of the coefficients. 1 2.43 1.4200 2 3.21 1.5500 3 0.18 0.0818 For which of the coefficients can the hypothesis that they arg equal to zero be rejected at the 0.08 level of significance? A) 1 and 2 only. B) 2and 3 only. ©) 3only. Question #56 0f 191 ‘An analyst is teSungito see whether a dependent variable Is related to three independent variables. He finds that two of the independent variables are highly correlated with each other, but that the correlation is spurious. Which of the following is most accurate? There is: A) no evidence of multicollinearity and serial correlation. B) evidence of multicollinearity but not serial correlation. ©) evidence of multicollinearity and serial correlation. Consider a study of 100 university endowment funds that was conducted to determine if the funds’ annual risk-adjusted returns could be explained by the size of the fund and the hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print 2889162018 Leaming Management System percentage of fund assets that are managed to an indexing strategy. The equation used to ‘model this relationship ARAR; = bg + bySize; + baindex; +e; Where: [ARAR, = the average annual risk-adjusted percent returns for the fund /over the 1998- 2002 time period. Size; = the natural logarithm of the average assets under management for fund i Index; = the percentage of assets in fund /that were managed to an ind&xing strategy. ‘The table below contains a portion of the regression results from the study. Intercept 7 0.55 Size 0.6 0.18 Index 1 2? 24 Question #57 of 191 Which of the following is the most accurate interpretation of the slope coefficient for size? ARAR: A) and index will, change by 1.19 when the natural logarithm of assets under management changes By1.0. B) will change by 1.0% when the natural logarithm of assets under management changes by 0.6, holding index constant. ©) will change by 0.6% when the natural logarithm of assets under management changes by 1.0, holding index constant. Question #58 of 191 Which of the following is the estimated standard error of the regression coefficient for index? hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print 278891672018 Learning Management System A) 2.31. B) 1.91. 9) 052. Question #59 of 191 Which of the following is the tstatistic for size? A) 0.30. B) 3.33. ©) 0.70. Question #60 of 191 Which of the following is the estimated intercept for the regression? A) -9.45, B) -2.86. ©) -0.11, Question #61 of 191 Which of the following statements is most accurate regarding the significance of the regression parameters at a 5% level of significance? ‘A) The parameter estimates for the intercept and the independent variable size are significantly different than zero. The coefficient for index is not significant. B) The parameter estimates for the intercept are significantly different than zero, The slope coefficients for index and size are not significant. ©) All of the parameter estimates are significantly different than zero at the 5% level of significance. Iitesshiwu kaplanieam conveducstion|seshcoardindex8¢eaSh7.da205afSe ibaG290757 practice/gbank’23035130iqui/@0533902%print 2891672018 Learning Management System Question #62 of 191 Winich of the tollowing is NU! a required assumption tor multiple near regression’ A) The expected value of the error term is zero, B) The error term is normally distributed. © The error term is linearly related to the dependent variable. Question #63 of 191 ‘An analyst wishes to test whether the stock returns of two portfoliditnanagers provide different average returns. The analyst believes that the portfolio managefs' returns are related to other factors as well. Which of the following can provide a suitable test? A) Paired-comparisons. B) Dummy variable regression. © Difference of means. Question #64 of 191 Henry Hilton, CFA, undertaking an analysis of the bicycle industry. He hypothesizes that, bicycle sales (SALES) are a function of three factors: the population under 20 (POP), the level of disposable ingome (INCOME), and the number of dollars spent on advertising (ADV). All data are measured in millions of units. Hilton gathers data for the last 20 years and estimates the following equation (standard errors in parentheses): SALES a |+0.004 POP |+ 1.031 INCOME |+2.002 ADV (0.005) (0.337) (2.312) The critical t-statistic for a 95% confidence level is 2.120. Which of the independent variables is statistically different from zero at the 95% confidence level? ‘A) INCOME only. Iitesshiwu kaplanieam conveducstion|seshcoardindex8¢eaSh7.da205afSe ibaG290757 practice/gbank’23035130iqui/@0533902%print 208891672018 LLeaming Management System B) INCOME and ADV. ©) ADVonly. Question #65 of 191 Which of the following statements regarding the R? is Jeastaccurate? A) The F-statistic for the test of the fit of the model is the ratio of the mean squared regression to the mean squared error. 8) The R? is the ratio of the unexplained variation to the explained variationnof'the dependent variable. ©) The R? of a regression will be greater than or equal to the adjusted-R2 for the same regression. Manuel Mercado, CFA has performed the following two regressions on sales data for a given industry. He wants to forecast sales for each(quartér of the upcoming year. Multiple R 0.941828 Ro 0.887039 Adjusted Ry 0.863258 Standard Error 2.543272 Observations 24 Durbin-Watson test statistic = 0.7856 Residual 19| 122.8964] 6.4682 Total 23] 1087.9583 npn kaplanleam comiedueation/dashooardindexi8deast3da229SatSe1bsb’a8200757lpracice/qpank/230351391qui808530021pxnt soe91672018 Learning Management System Intercept 31.40833 1.4866, 21.12763 Qi -3.77798 1.485952 -2.54246 Q2 ~2.46310 1.476204 -1,66853 Q3 -0.14821 1.470324 -0.10080 TREND 0.851786 0.075335 11.20848 Multiple R 0.941796 R? 0.886979 Adjusted R? 0.870026 Standard Error 2.479538 Observations 2a Durbin-Watson test statistic = 0.7860 Regression 3] 96419962] 321.6654] 52.3194 1.19E-09 Residual 20] 122.9622} 6.14811 Total 23), 1087.9584 Intercept 3132888 1.228865 25.49416 Qi -3.70288 1.253493 -2.95405 Q2 2.38839 1.244727 -1.91881 TREND 0.85218 0.073991 11.51732 ‘The dependent variable is the level of sales for each quarter, in $ millions, which began with the first quarter of the first year. Q1, Q2, and Q3 are seasonal dummy variables representing each quarter of the year. For the first four observations the dummy variables are as follows: Q1 (1,0,0,0), Q2:(0,1,0,0), Q3:10,0,1,0). The TREND isa series that begins with one and increases by npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt s1vee91672018 Leaming Management System ‘one each period to end with 24. For all tests, Mercado will use a 5% level of significance. Tests, of coefficients will be two-tailed, and all others are one-tailed. Question #66 of 191 Which mode! would be a better choice for making a forecast? A) Model ONE because it has a higher K2. B) Model TWO because serial correlation is not a problem. © Model TWO because it has a higher adjusted R2 Question #67 of 191 Using Model ONE, what is the sales forecast for the second quarter of the next year? A) $56.02 million, B) $46.31 million. ©) $51.09 million, Question #68 of 191 Which of the coefficients that appear in both models are not significant at the 54% level in a two- talled test? A) The coefficients on Q1 and Q2 only. B) The intercept only. ©) The coefficient on Q2 only. Question #69 of 191 1m comieducatonidashooardindexi8seastT73da229Sat8e1bsb’a8200757lpracice/qank’230351391qule/0833002%pxnt s218@91672018 Leaming Management System Ifit is determined that conditional heteroskedasticity is present in model one, which of the following inferences are most accurate? A) Regression coefficients will be biased but standard errors will be unbiased. B) Regression coefficients will be unbiased but standard errors will be biased. ©) Both the regression coefficients and the standard errors will be biased. Question #70 of 191 Mercado probably did not include a fourth dummy variable Q4, which would Hay@had 0, 0, 0, 1 as its first four observations because: AA) it would have lowered the explanatory power of the equation. B) the intercept is essentially the dummy for the fourth quarter. © it would not have been significant. Question #71 of 191 If Mercado determines that Model TWO is the appropriate specification, then he is essentially saying that for each year, yalu@of'sales from quarter three to four is expected to: A) grow, but by less than $1,000,000. B) grow by moréthan $1,000,000. ©) remain approximately the same. Question #72 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print s2V8e9162018 Leaming Management System Henry Hilton, CFA, is undertaking an analysis ofthe bicycle industry. He hypothesizes that bicycle sales (SALES) are a function of three factors: the population under 20 (POP), the level of disposable income (INCOME), and the number of dollars spent on advertising (ADV). All data are maasiirer in millinns af units Hilton gathers data far the last 2” yars and actimates the following equation (standard errors in parentheses): SALES|= 0.000 }+0.004 POP |+1.031 INCOME |+2.002 ADV (0.113) | (0.005) (0. 7) (2.312) For next year, Hilton estimates the following parameters: (1) the population under 20 will be 120 million, (2) disposable income will be $30,000,000, and (3) advertising expenditures will be '$100,000,000. Based on these estimates and the regression equation, what dre predicted sales for the industry for next year? A) $509,980,000. B) $57,143,000. ©) $656,991,000. Question #73 of 191 May Jones estimated a regression that/produced the following analysis of variance (ANOVA) table: Source | Suim of squares Degrees of freedom| Mean square Regression 20 1 20 Error 80 40 2 Total 100 41 The values of R? and the F-statistic for the fit of the model are: A) R?= 0.20 and F=10. B) R2 = 0.25 and F= 0.909. ©) R?=0.25 and F=10, hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print saee91672018 Leaming Management System Using a recent analysis of salaries (in $1,000) offinancial analysts, a regression of salaries on education, experience, and gender is run. (Gender equals one for men and zero for women.) ‘The regression results from a sample of 230 financial analysts are presented below, with t- statisties in parenthesis Salary |= 34.98 |+1.2 Education | +0.5 Experience | + 6.3 Gender (29.11) (8.93) (2.98) (1.58) Timbadia also runs a multiple regression to gain a better understanding of the relationship between lumber sales, housing starts, and commercial construction. The regression uses a large data set of lumber sales as the dependent variable with housing starts and commercial, construction as the independent variables. The results of the regression are! Intercept 5.337 174 3.14 Housing starts 0.76 0,09, 8.44 Commercial 1.25 033 3.78 Construction Finally, Timbadia runs a regression between,th@retUims on a stock and its industry index with the following results: Intercept 24 2.01 Industry Index 1.9 0.31 ‘© Standardiecror of estimate = 15.1 © Correlation coefficient = 0.849 Question #74 of 191 What is the expected salary (in $1,000) of a woman with 16 years of education and 10 years of experience? A) 54.98. B) 59.18. ©) 65.48. npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt ase91672018 Learning Management System Question #75 of 191 Holding everytning else constant, do men get paid more than women Use a 5% level ot significance ‘A) No, since the t-value does not exceed the critical value of 1.96. B) Yes, since the tvalue exceeds the critical value of 1.56. ©) No, since the t-value does not exceed the critical value of 1.65. Question #76 of 191 Construct a 95% confidence interval for the slope coefficient forlHobising Starts. A) 0.76 + 1.96(8.44), B) 1.25 + 1,96(0.33). ©) 0.76 + 1.96(0.09) Question #77 of 191 Construct a 95% confidence interval for the slope coefficient for Commercial Construction. 8) 0.76 +1 96(¢709), B) 1.25 + 1:96(0.33). ©) 1.25 + 1.96(3.78). Question #78 of 191 Ifthe return on the industry index is 4%, the stock's expected return would be: A) 7.6%, B) 11.2%. Iitesshiwu kaplanieam conveducstion|seshcoardindex8¢eaSh7.da205afSe ibaG290757 practice/gbank’23035130iqui/@0533902%print s6i8@91672018 hitps:/wkaplanlear comledueationidashooardindex8 Learning Management System 0) 9.7%. Question #79 of 191 ‘The percentage of the variation in the stock return explained by the variation in the industry index return is closest to: A) 63.2%. B) 72.1%. ©) 84.9%, Question #80 of 191 Consider the following estimated regression equation, with’Standard errors of the coefficients as indicated: Sales; = 10,0 + 1.25 R&D; + 1,0 ADV}=2.0 COMP; + 8.0 CAP; where the standard errorfor R&D Is 0.45, the standard error for ADV is 2.2, the standard error for COMP'0,63, and the standard error for CAP is 2.5. ‘The equation was estimated over 40 companies. Using a 5% level of significance, what are the hypotheses and the éaleulated test statistic to test whether the slope on R&D is different from 1.07 A) Ho: bea #l versus Ha: Dra = 1; t= 2.778. B) Ho: bra = 1 versus Hat brant; t= 2.778. ©) Ho: bray = 1 versus Ha: Daap# 1; t = 0.556. Areal estate agent wants to develop a model to predict the selling price of a home. The agent. believes that the most important variables in determining the price of a house are its size (in square feet) and the number of bedrooms. Accordingly, he takes a random sample of 32 homes that has recently been sold. The results of the regression are: cay penn SSE UE NUNES UN NESSES S-389205afSe 15ba8290757 practce/qbank’23035139/qui/@0533902%print s7i8e91672018 Learning Management System Intercept 66,500 59,292 112 House Size 74,30 21.11 3.52 Number of 10306 3230 3.19 Bedrooms R?= 0.56; F= 40.73 Selected F- table values for significance level of 0.05: rs 28 4,20 3.34 29 4.18 3.33 30 417 3.32 32 415 3.29 (Degrees of freedom for the numerator in columhs; Degrees of freedom for the denominator in rows) Additional information regarding this multiple ragression: 1, Variance of error is not constanttatross the 32 observations. 2. The two variables (size of the house and the number of bedrooms) are highly correlated. 3, The error variance is ndt cotrelated with the size of the house nor with the number of, bedrooms. Question #81 of 191 ‘The predicted price of a house that has 2,000 square feet of space and 4 bedrooms is closest to: A) $256,000 B) $114,000 ©) $185,000 Question #82 of 191 hites:hiwu kaplanieam conveducstion/seshcoardindex/8¢eaSh7.Ida3205afSe isbia8290757 practice/gbank’23035130iquie/@0533902%print sev8e91672018 Learning Management System The conclusion from the hypothesis test of Ho: by = bz = 0, is that the null hypothesis should: A) not be rejected as the calculated F of 40.73 is greater than the critical value of 3.29. B) be rejected as the calculated F of 40.73 is greater than the critical value of 3.29. ©) be rejected as the calculated F of 40.73 is greater than the critical value of 3.33. Question #83 of 191 ‘The regression results indicate that at 2 5% level of significance: A) the slopes and the intercept are both statistically significant. B) the slopes are not significant but the intercept is significant. C) the slopes are significant but the intercepts not. Question #84 of 191 Which of the following is most likely to Present a problem in using this regression for forecasting? A) autocorrelation. B) heteroskedasticity. © multicollinearity. Question #85 of 191 Based on the information given in this question, heteroskedasticity is: A) present but a statistical inference is still reiable. B) not present and a statistical inference is reliable. © present and a statistical inference is unreliable. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print s9/8e91672018 Leaning Management System Question #86 of 191 For this regression model, which condition is most likely?: A) Coefficient estimates may be unreliable ard standard error may be biosed. B) Coefficient estimates will be consistent but standard error may be biased. © Coefficient estimates may be inconsistent but standard error will be unbiased. Question #87 of 191 Which of the following statements regarding heteroskedasticity is /east accurate? A) Heteroskedasticity results in an estimated variance that is to'small and, therefore, affects statistical inference. B) The assumption of linear regression is that the residuals are heteroskedastic. ©) Heteroskedasticity may occur in cross-sectional or time-series analyses. Question #88 of 191 Consider the following estimated regression equation, with standard errors of the coefficients as indicate Sales, = 100+ 1.25 R&D, + 1.0 ADV, - 2.0 COMP, + 8.0 CAP, where the standard error for R&D is 0.45, the standard error for ADV is 2.2, the standard error for COMP 0.63, and the standard error for CAP is 2.5. Sales are in millions of dollars. An analyst is given the following predictions on the independent variables: R&D = 5, ADV = 4, COMP = 10, and CA? = 40. The predicted level of sales is closest to: A) $310.25 million. B) $320.25 million, ©) $300.25 million, hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print aoe91672018 Learning Management System Question #89 of 191 Wmnich of the tollowing statements regaraing neteroskeaasticity Is least accurate? A) The presence of heteroskedastic error terms results in a variance of the residuals that is too large. B) Heteroskedasticity only occurs in cross-sectional regressions. ©) Multicollinearity is a potential problem only in multiple regressions, not simple regressions. Question #90 of 191 When two or more of the independent variables in a multiple regréssion are correlated with each other, the condition is called: A) conditional heteroskedasticity. B) multicollinearity. ©) serial correlation. Question #91 0f.191 A fund has changed managers twice during the past 10 years. An analyst wishes to measure Whether eithér'of the changes in managers has had an impact on performance. The analyst, wishes to simultaneously measure the impact of risk on the fund's return, Ris the return on the fund, and M is the return on a market index. Which of the following regression equations can appropriately measure the desired impacts? A) R=a+bM + cyDy + caD2 + C303 + €, where Dy if the return is from the first manager, and D2 = 1 ifthe return is from the second manager, and D3 = 1 is the return is from the B) R= a+ bM + 1D; + C202 +, where Dj = 1 if the return is from the first manager, and D2 = 1 if the return is from the third manager. ©) The desired impact cannot be measured. Iitesshiwu kaplanieam conveducstion|seshcoardindex8¢eaSh7.da205afSe ibaG290757 practice/gbank’23035130iqui/@0533902%print 48891672018 Learning Management System William Brent, CFA, is the chief financial officer for Mega Flowers, one of the largest producers of flowers and bedding plants in the Western United States. Mega Flowers grows its plants in three large nursery faclites located in California. Its products are sold in its company-owned retail nurseries as well as in large, home and garden "super centers'". For its retail stores, Mega Flowers has designed and implemented marketing plans each season that are aimed at its consumers in order to generate additional sales for certain high-margin products. To fully implement the marketing plan, additional cantract salespeople are seasonally employed For the past several years, these marketing plars seemed to be successful, providing a significant boost in sales to those specific products highlighted by the marketing efforts. However, for the past year, revenues have been flat, even though marketing expéntiitures increased slightly. Brent is concerned that the expensive seasonal marketing campaigns are simply no longer generating the desired returns, and should either be significaiitly modified or eliminated altogether. He proposes that the company hire additiofial, permanent salespeople to focus on selling Mega Flowers’ high-margin products all yearlong The chief operating officer, David Johnson, disagrees with Brent. He believes that although last year's results were disappointing, the marketing campaign has demonstrated impressive results for the past five ryears, and should be continued. His belief is that thé\prior years’ performance can be used as @ gauge for future results, and that a simple Increase If the sales force will not bring about the desired results. Brent gathers information regarding/quiartérly sales revenue and marketing expenditures for the past five years, Based upon histor ital data, Brent derives the following regression equation for Mega Flowers (stated in millions of dollars): Expected Sales 2.6 + 1.6 (Marketing Expenditures}+ 1.2 (# of Salespeople) Brent shows thé @quation to Johnson and tells him, "This equation shows that 2 $1 million increase in’marketing expenditures will increase the independent variable by $1 .6 million, all other factors being equal." Johnson replies, "It also appears that sales will equal $12.6 milion it all independent variables are equal to zero. Question #92 of 191 In regard to their conversation about the regression equation: A) Brent's statement is incorrect; Johnson's statement is correct. B) Brent's statement is correct; Johnson's statement is correct. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print 426891672018 Learning Management System © Brent's statement is correct; Johnson's statement is incorrect. Question #93 of 191 Using data from the past 20 quarters, Brent calculates the t-statistic for marketing expenditures to be 3.68 and the t-statistic for salespeople at 2.19. At a 5% significance level, the two-tailed critical values are te = +/-2.127. This most kely Indicates that: AA) both independent variables are statistically significant. B) the tstatistic has 18 degrees of freedom. €) the null hypothesis should not be rejected. Question #94 of 191 Brent calculated that the sum of squared errors(SSE) far the variables is 267. The mean squared error (MSE) would be: A) 14.055. B) 15.706. ©) 14.831, Question #95 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print save9162018 Leaming Management System Brent is trying to explain the concept of the standard error of estimate (SEE) to Johnson. In his explanation, Brent makes three points about the SEE: * Point 1: The SEE is the standard deviation of the differences between the estimated values for the independent variables and the actual observations for the independent variable. ‘+ Point 2: Any violation of the basic assumptions of a multiple regression model is going to affect the SEE. ‘+ Point 3: If there is a strong relationship between the variables and the SSE is small, the individual estimation errors will also be small. How many of Brent's points are most accurate? A) 1 of Brent's points are correct. B) All3 of Brent's points are correct. ©) 2 of Brent's points are correct. Question #96 of 191 ‘Assuming that next year's marketing expenditures are $3,500,000 and there are five salespeople, predicted sales for Mega Flowers should will be: A) $24,200,000, B) $11,600,000. © $24,000,000, Question #97 of 191 Brent would like to further investigate whether at least one of the independent variables can explain a significant portion of the variation of the dependent variable, Which of the following methods would be best for Brent to use? A) An ANOVA table. B) The Fstatistic hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print a891672018 Learning Management System ©) The multiple coefficient of determination. Question #98 of 191 Bill Samuels, a summer intern at Capulito Securtties, is evaluating the results of a regression ‘model. The model was developed by the Capulito's senior economist several years ago, and Samuels decided to evaluate the model using more recent data. The model provides a forecast for the price of oil (per barrel in USD) based on «he following independent variables: LNG: The natural log of the global GDP (in trillions of USD) for the last quarter usb: he trade-weighted value of the US dollar versus a basket of global cUfrencies GLb: he average price of an ounce of gold over the last quarter (i USD), The regression output using the last ten years of quarterly dat@'is'shown below: Intercept 23.12 1.975 LNG 4.83 0.972 USD 21.22 0.25 GLD 0.012 0.0008 Ata five percent level of significance, the coefficient for LNG is most likely. A) significantly different from 4. B) significantly greater than 3. €) significantly less than 6, Question #99 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print as@91672018 Leaming Management System Henry Hilton, CFA, is undertaking an analysis ofthe bicycle industry. He hypothesizes that bicycle sales (SALES) are a function of three factors: the population under 20 (POP), the level of disposable income (INCOME), and the number of dollars spent on advertising (ADV). All data are maaciirert in millinns af tinits Hilton gathers data for the lact 20 years Which af the fallnw regression equations correctly represents Hilton's hypothesis? A) SALES = ax By POP x Ba INCOME x B3 ADV. B) INCOM + By POP + Bp SALES + B3 ADV+ €. ©) SALES = a + By POP + Bz INCOME + 3 ADV+e. Question #100 of 191 Consider the following graph of residuals and the regression line fram a time-series regression: Residuals Time These residuals exhibitthe regression problem of. ‘A) homoskedasticity. B) autocorrelation. ©) heteroskedasticity. Question #101 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print 48891672018 Leaming Management System ‘An analyst is trying to determine whether fund return performance is persistent. The analyst divides funds into three groups based on whether their return performance was in the top third (group 1), middle third (group 2), or bottom third (group 3) during the previous year. The manager then creates the fallawing eniatinn: $i, + hgNa + hgNy +, where Ric return premium on the fund (the return minus the return on the S&P 500 benchmark) and D; is equal to 1 if the fund is in group i. Assuming no other information, this equation will suffer from: A) heteroskedasticity. B) serial correlation. €) multicollinearity. Question #102 of 191 ‘An analyst is estimating a regression equation with three independent variables, and calculates the R2, the adjusted R2, and the F-statistic. The analyst then decides to add a fourth variable to the equation. Which of the following is most accurate? A) The R2 will be higher, but the adjusted R? and F-statistic could be higher or lower. 8) The adjusted R? will be higher, bUtthe R? and F-statistic could be higher or lower. ©) The R? and F-statistic will beigher, but the adjusted R2 could be higher or lower. Lynn Carter, CFA, anjanalyst in the research department far Smith Brothers in New York. She follows several industries, as well as the top companies in each industry. She provides research materials foPbOth the equity traders for Smith Brothers as well as their retail customers. She routinely performs regression analysis on those companies that she follows to identify any emerging trends that could affect investment decisions. Due to recent layoffs at the company, there has been some consolidation in the research department. Two research analysts have been laid off, and their workload will now be distributed among the remaining four analysts. In addition to her current workload, Carter will now be responsible for providing research on the airline industry. Pinnacle Airlines, a leader in the industry, represents a large holding in Smith Brothers' portfolio. Looking back over past research on Pinnacle, Carter recognizes that the company historically has been a strong performer in what is considered to be a very competitive industry. The stock price over the last hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print 478891672018 Leaming Management Syst '52-week period has outperformed that of other industry leaders, although Pinnacle's net income has remained flat. Carter wonders if the stock price of Pinnacle has become overvalued relative to its peer group in the market, and wants to determine if the timing is right for Smith Renthers tn decrease its pasitinn in Pinnarle Carter decides to run a regression analysis, using the monthly returns of Pinnacle stock as the dependent variable and monthly returns of the airlines industry as the independent variable. Regression 1 3,257 (RSS) 3,257 (MSR) Error 8 298 (SSE) 37.25 (MSE) Total 9 3,555 (SS Total) Question #103 of 191 Which of the following is feast likely to be an assumption regarding linear regression? A) The variance of the residuals is constant. B) Allinear relationship exists between the dependent and independent variables. ©) The independent variable is orrélated with the residuals. Question #104 of 191 Carter wants to test the strength of the relationship between the two variables. She calculates a correlation coefficient of 0.72. This means that the two variables: A) have a positive linear association. B) have no relationship. ©) have a positive but non-linear relationship, Question #105 of 191 npn kaplanleam comleducston/dashboardindexi84eastT73da220Sat6ebsb’a8200757lpracielqank’230351391quie80833002%pxnt see91672018 Leaming Management System Based upon the information presented in the ANOVA table, what is the standard error of the estimate? A) 6.10. B) 57.07. ©) 37.25, Question #106 of 191 Based upen the information presented in the ANOVA table, what is the coefficientiof determination? A) 0.916, indicating that the variability of industry returns explaing about 91.6% of the variability of company returns. B) 0.084, indicating that the variability of industry returns\explains about 8.4% of the variability of company returns. ©) 0.839, indicating that company returns explain about 83.9% of the variability of industry returns, Question #107 of 191 Based upon her analysis, Carter has derived the following regression equation: ¥ = 1.75 + 3.25%). The predicted value of the ¥ variable equals 50.50, ifthe: A) predicted value of the dependent variable equals 15. B) coefficient of the determination equals 15. ©) predicted value of the independent variable equals 15. Question #108 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print 491891672018 Leaming Management System Carter realizes that although regression analysis is a useful tool when analyzing investments, there are certain limitations, Carter made a lst of points describing limitations that Smith Brothers equity traders should be aware of when applying her research to their investment decisions, ‘© Point 1: Data derived from regression analysis may be homoskedastic. ‘+ Point 2: Data from regression relationships tends to exhibit parameter instability. Point 3: Results of regression analysis may exhibit autocorrelation. ‘Point 4: The variance of the error term may change over time. When reviewing Carter's list, one of the Smith Brothers’ equity traders points out that not all of the points describe regression analysis limitations. Which of Carter's points most/aecurately descripes the limitations to regression analysis? A) Points 2, 3, and 4. B) Points 1, 3, and 4. ©) Points 1, 2, and 3. Question #109 of 191 Consider the following estimated regression equation, with the standard errors of the slope coefficients as noted: Sales; = 10,0 41.25 R&D; + 1.0 ADV; - 2.0 COMP; + 8.0 CAP; where th'standard error for the estimated coefficient on R&D Is 0.45, the standard error.for the estimated coefficient on ADV is 2.2, the standard error for the estimated coefficient on COMP is 0.63, and the standard error for the estimated coefficient on CAP is 2.5. The equation was estimated over 40 companies. Using a 5% level of significance, which of the estimated coefficients are significantly different from zero? A) ADV and CAP only. B) R&D, ADV, COMP, and CAP. ©) R&D, COMP, and CAP only. hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print saree91672018 Learning Management System Question #110 of 191 ‘The amount of the State of Florida's total revenue that is allocated to the education budget is, believed to be dependent upon the total revenve for the year and the political party that controls the state legislature, Which of the following regression models is most appropriate for capturing the effect of the political party on the education budget? Assume Y; is the amount of the education budget for Florida in year t, X is Florida's total revenue in year t, and D, = {1 if the legislature has a Democratic majority in year t, 0 otherwise}. A) Y¢= by + biDe + ey B) Ye = DyDe + boxe +e ©) Y= bp + biDy + boXe + et. Question #111 of 191 63 monthly stock returns for a fund between 1997-anld 2002 are regressed against the market return, measured by the Wilshire 5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one isequal to 1 if the return is from a month between 2000 and 2002. Dummy variable number two is equal to 1 Ifthe return Is from the second half of the year. There are 36 observationSwhen dummy variable one equals 0. half of which are when dummy variable two also equals 0. The following are the estimated coefficient values and standard errors of the coefficients. Market 1.43000 0.319000 Dummy 1 0.00162 0.000675 Dummy 2 0.00132 0.000733 What is the p-value for a test of the hypothesis that performance in the second half of the year is different than performance in the first half of the year? A) Between 0.01 and 0.05. B) Lower than 0.01 ©) Between 0.05 and 0.10. 1m comieducatonidashooardindexi8seastT73da229Sat8e1bsb’a8200757lpracice/qank’230351391qule/0833002%pxnt see91672018 LLeaming Management System Raul Gloucester, CFA, is analyzing the returns of a fund that his company offers. He tests the fund's sensitivity to a small capitalization index and a large capitalization index, as well as to whether the January effect plays a role in the fund's performance. He uses two years of monthly returns data, and runs a regression of the fund's return on the indexes and a January- effect qualitative variable. The "January" variable is 1 for the month of January and zero for all other months. The results of the regression are shown in the tables below. Multiple R 0.817088 Ro 0.667632 Adjusted R2 0.617777 Standard Error 1.655891 Observations 24 Regression 3 410,1568 36.71895 Residual [20 54.8395 2.741975 Total [23 164.9963 Intercept -0.23821 0.388717 -0.61282 January 2.560552 1.232634 2.077301 Small Cap Index 0.231349 0.123007 1.880778 Large Cap Index 0.951515 0.254528 3.738359 Gloucester will perform an Ftest for the equation. He also plans to test for serial correlation and conditional and unconditional heteroskedasticity. Jason Brown, CFA, is interested in Gloucester’s results. He speculates that they are economically significant in that excess returns could be earned by shorting the large capitalization and the small capitalization indexes in the month of January and using the proceeds to buy the fund. Question #112 of 191 npn kaplanleam comleducston/dashboardindexi84eastT73da220Sat6ebsb’a8200757lpracielqank’230351391quie80833002%pxnt91672018 Learning Management System The percent of the variation in the fund's return that is explained by the regression is: A) 61.78%. B) 66.76%. ©) 81.71%. Question #113 of 191 Ina two-tailed test at a five percent level of significance, the coefficients that are significant are: A) the January effect and the large capitalization index only. B) the January effect and the small capitalization index only. © the large cap index only. Question #114 of 191 Which of the following best summarizasithe results of an F-test (5 percent significance) for the regression? The F-statistic is: ‘A) 13.39 and the critical value is 3.86. B) 9.05 and the criticallvalue is 3.86. © 13.39 and the critical Value is 3.10, Question #115 of 191 The best test for unconditional heteroskedasticiy is: A) the Durbin-Watson test only. B) the Breusch-Pagan test only. ©) neither the Durbin-Watson test nor the Breusch-Pagan test. 1m comieducatonidashooardindexi8seastT73da229Sat8e1bsb’a8200757lpracice/qank’230351391qule/0833002%pxnt s3vee91672018 Learning Management System Question #116 of 191 In the month of January, if both the small and large capitalization index have a zero return, we would expect the fund to have a return equal to: A) 2.322, B) 2.799, ©) 2.561. Question #117 of 191 ‘Assuming (for this question only) that the F-test was significant but that the, t-tests of the independent variables were insignificant, this would most likely suggest? A) multicollinearity. B) serial correlation. ©) conditional heteroskedasticity. Question #118 of 197 Which of the following is féast accurate regarding the Durbin-Watson (OW) test statistic? A) If the residualsthave positive serial correlation, the DW statistic will be greater than 2. B) In tests of'setial correlation using the DW statistic, there is a rejection region, a region over which the test can fail to reject the null, and an inconclusive region. © If the residuals have positive serial correlation, the DW statistic will be less than 2 Question #119 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print see91672018 hitps:/wkaplanlear comledueationidashooardindex8 Leaming Management System ‘A dependent variable is regressed against three independent variables across 25 observations. ‘The regression sum of squares is 119.25, and the total sum of squares is 294.45. The following are the estimated coefficient values and standard errors of the coefficients. 1 2.43 1.4200 2 | 3.21 1.5500 3 [ons 0.0818 What is the p-value for the test of the hypothesis that all three of the coefficients are equal to. zero? A) Between 0.025 and 0.05. B) lower than 0.025. ©) Between 0.05 and 0.10. Question #120 of 191 During the course of a multiple regression analysis, an analyst has observed several items that, she believes may render incorrect éonclusions. For example, the coefficient standard errors are too small, although the estimat@@\cefficients are accurate. She believes that these small standard error terms will esul I the computed tstatistics being too big, resulting in too many Type | errors. The analyst has most likely observed which of the following assumption violations in her regression atialysis? A) Positiveseriabcorrelation. B) Multicollinearity. ) Homoskedasticity. Question #121 of 191 S7-399205afSe 1osb'a8290757 practce/qbank’23035139/quie/@0533902%print 556291672018 Learning Management Sys Consider the following analysis of variance (ANOVA) table: Regression Error 80 40 2 Total 100 41 ‘The Fstatistic for the test of the fit of the model is closest to: A) 10.00. R)075, ©) 0.10. Question #122 of 191 Consider the following analysis of variance tablet Regression 20. 1 20 Error 80 20 4 Total 100 21 ‘The F-statistic for altest of the overall significance of the model is clasestto: A)02 B)5 ©) 005 John Rains, CFA, is a professor of finance at a large university located in the Eastern United States, He is actively involved with his local chapter of the Society of Financial Analysts. Recently, he was asked to teach one session of a Society-sponsored CFA review course, specifically teaching the class addressing the topic of quantitative analysis. Based upon his familiarity with the CFA exam, he decides that the first part of the session should be a review of npn kaplanleam comleducatonidashboardindexi84eastT73da229Sat8e1bsb’a6200757lpracielqank’23035139/quie/80833002%pxnt ‘seve91672018 Leaming Management System the basic elements of quantitative analysis, such as hypothesis testing, regression and multiple regression analysis. He would like to devote the second half of the review session to the practical application of the topics he covered inthe first half. Rains decides to construct a sample regression analysis case study for his students in order to demonstrate a "real-life" application of the concepts. He begins by compiling financial Information on a fictitious company called Big Rig, Inc. According to the case study, Big Rig is the primary producer of the equipment used in the exploration for and drilling of new oil and 82S wells in the United States. Rains has based the information in the problem on an actual equity holding in his personal portfolio, but has simplified the data for the purposes of the review course. Rains constructs a basic regression mode! for Big Rig In order to estimate its profitability (In millions), using two independent variables: the number of new wells drillédilg the U.S. (WLS) and the number of new competitors (COMP) entering the market: Profits = bg + by WLS - b:COMP + & Based on the model, the estimated regression equation is: Profits = 22.5 + 0.98(WLS) - 0.35(COMPf Using the past 5 years of quarterly data, he Calculated the following regression estimates for Big Rig, Inc: Intercept 22.5 2.465 wLs 0.98 0.683 comp 0.35 0.186 Question #123 of 191 Using the information presented, the t-statistic ‘or the number of new competitors (COMP) coefficient is: A) 9.128, B) 1.435. ©) 1.882. sn comiedueatonidashooardindexi8 Si 3892055 195ba8290757 practce/qbank’23035139/quie/@0533902%print srise91672018 Learning Management System Question #124 of 191 Rains asks his students to test the null hypothesis that states for every new well drilled, profits will be increased by the given multiple of the coefficient, all other factors remaining constant. The appropriate hypotheses for this two-tailed test can best be stated as: A) Hot by = 0.98 versus Ha: by # 0.98. B) Ho: by = .35 versus Ha: by # 0.35. ©) Ho: by £0.98 versus Ha: by > 0.98. Question #125 of 191 Continuing with the analysis of Big Rig, Rains asks his students t6 calcUlate the mean squared error(MSE). Assume that the sum of squared errors (SSE) fof thé,sgression model is 359, A) 17.956. B) 18.896. ©) 21.118, Question #126 of 191 Rains now wants téitast the students knowledge of the use of the Ftest and the interpretation of the statistic) Which of the following statements regarding the test and the Fstatistic is the most correct? A) The Ftest is usually formulated as a two-tailed test, B) The Fstatistic is used to test whether at least one independent variable in a set of independent variables explains a significant portion of the variation of the dependent ©) The Fstatistic is almost always formulated to test each independent variable separately, in order to identify which variable is the most statistically significant. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print sa/ee91672018 Learning Management System Question #127 of 191 (One of the main assumptions of a multiple regression model is that the variance of the residuals is constant across all observ ns in the sample. A violation of the assumption is most likelyto be described as: A) unstable remnant devi B) heteroskedasticity. ©) positive serial correlation. Question #128 of 191 Rains reminds his students that a common condition that can distortthe results of a regression analysis Is referred to as serial correlation. The presence of serialicorrelation can be detected through the use of: A) the Durbin-Watson statistic. B) the Breusch-Pagen test. ©) the Hansen method. Question #129 0f.191 Which of the following Statements regarding the analysis of variance (ANOVA) table is /east accurate? The A) standard error of the estimate is the square root of the mean square error. B) F-statistic is the ratio of the mean square regression to the mean square error. ©) statistic cannot be computed with the data offered in the ANOVA table. Question #130 of 191 Which of the following is @ potential remedy for multicollinearity? hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print sa/8e91672018 Learning Management System A) Take first differences of the dependent variable. B) Omit one or more of the collinear variables. €) Add dummy variables to the regression. Question #131 of 191 ‘An analyst is investigating the hypothesis that the beta of a fund is equal to one. The analyst takes 60 monthly returns for the fund and regresses them against the Wilshire 5000. The test statistic Is 1.97 and the p-value Is 0.05. Which of the following Is CORRECT? A) if beta is equal to 1, the likelihood that the absolute value of the teststatistic would be greater than or equal to 1.97 is 5%. B) If beta is equal to 1, the likelihood that the absolute value/of the test statistic is equal to 1.97 is less than or equal to 5%, ©) The proportion of occurrences when the absolute value of the test statistic will be higher when beta is equal to 1 than when beta is;not equal to 1 is less than or equal to Question #132 of 197 Consider the following regression equation: Sales; = 1020\¢ 1.25 R&D, + 1.0 ADV, - 2.0 COMP) + 8.0 CAP, whefe Sales is dollar sales in millions, R&D is research and development expenditures in millions, ADV is dollar amount spent on advertising in millions, COMP is the number of competitors in the industry, and CAP is the capital expenditures for the period in millions of dollars. Which of the following is NOT a correct interpretation of this regression information A) One more competitor will mean $2 milion less in Sales (holding everything else constant). B) If a company spends $1 million more on capital expenditures (holding everything else constant), Sales are expected to increase by $8.0 million, hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print cons91672018 Leaming Management System ©) If R&D and advertising expenditures are $7 million each, there are 5 competitors, and capital expenditures are $2 million, expected Sales are $8.25 million. Question #133 of 191 One of the underlying assumptions of a multiple regression is that the variance of the residuals Is constant for various levels of the independent variables. This quality is referred to as: A) anormal distribution, B) homoskedasticty. © alinear relationship. Question #134 of 191 Alex Wade, CFA, is analyzing the result of a regressiOn analysis comparing the performance of gold stocks versus a broad equity market index: Wade believes that serial correlation may be present, and in order to prove his thedry, shiould use which of the following methods to detect. its presence? AA) The Breusch-Pagan test. B) The Durbin-Watsonsstatistic. © The Hansen method. Question #135 of 191 ‘The Fstatistic is the ratio of the mean square regression to the mean square error. The mean squares are provided directly in the analysis of variance (ANOVA) table, Which of the following statements regarding the ANOVA table for a regression is most accurate? A) R2 = SSpegression - SSerror / SStotal- B) R= SSpegression / SSrotak hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print vee91672018 Learning Management System ©) R= SSerror / SStotak Question #136 of 191 Consider the following model of earnings (EPS) regressed against dummy variables for the quarters: EPS, = a + BiQit + B2Qor + BaQar where: EPS; is a quarterly observation of earnings per share Qic takes on a value of 1 if period t is the second quarter, Otherwise Qz¢ takes on a value of 1 if period tis the third quértéry otherwise Qz_ takes on a value of 1 if period tis the fourth quarter, 0 otherwise Which of the following statements regarding.this model is most accurate? The: AA) coefficient on each dummy tells us’about the difference in earnings per share between the respective quarter and the’one left out (first quarter in this case). B) EPS for the first quarter is represented by the residual, €) significance of the coefficients cannot be interpreted in the case of dummy variables. Question #137 of 191 Consider the following regression equation Sales, = 20.5 + 1.5 R&D, + 2.5 ADV - 3.9 COMP, where Sales is dollar sales in millions, R&D is research and development expenditures in millions, ADV is dollar amount spent on advertising in millions, and COMP is the number of competitors in the industry. Which of the following is NOT a correct interpretation of this regression information? hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print ozs91672018 Leaming Management System A) Ifa company spends $1 more on R&D (holding everything else constant), sales are expected to increase by $1.5 million. B) One more competitor will mean $3 million less in sales (holding everything else constany. €) IF R&D and advertising expenditures are $" million each and there are 5 competitors, expected sales are $9.5 million. Miles Mason, CFA, works for ABC Capital, a large money management company based in New York. Mason has several years of experience as@ financial analyst, but is currently.working in the marketing department developing materials to be used by ABC's sales team for both existing and prospective clients, ABC Capital's cient base consists primarjlyof large net worth individuals and Fortune 500 companies. ABC invests its clients’ money/in both publicly traded mutual funds as well as its own investment funds that are managed in-house. Five years ago, roughly halt of its assets under management were invested jn:thepublicly traded mutual tunds, with the remaining half in the funds managed by ABC's investment team. Currently, approximately 75% of ABC's assets under managemeht ate invested in publicly traded funds, with the remaining 25% being distributed among“ABC'S private funds. The managing partners at ABC would like to shift more of its client's 8ssefS'away from publicly-traded funds into ABC's proprietary funds, ultimately returning\t6 '50/50 split of assets between publicly traded funds and ABC funds. There are three key.feaSofis for this shift in the firm's asset base. First, ABC's in- house funds have outperformed other Tunds consistently for the past five years. Second, ABC can offer its clients a reduced fee structure on funds managed in-house relative to other publicly traded funds. Lastly, ABC has recently hired a top fund manager away from a competing investment company and would like to increase his assets under management. ABC Capital's\upper management requested that current clients be surveyed in order to determine thé Cause of the shift of assets away from ABC funds. Results of the survey indicated that clients feel there is a lack of information regarding ABC's funds. Clients would lke to see extensive information about ABC's past performance, as well as a sensitivity analysis showing, how the funds will perform in varying market scenarios. Mason is part of a team that has been charged by upper management to create a marceting program to present to both current and potential clients of ABC. He needs to be able to demonstrate a history of strong performance for the ABC funds, and, while not promising any measure of future performance, project possible return scenarios. He decides to conduct a regression analysis on all of ABC's in-house funds. He is going to use 12 independent economic variables in order to predict each particular fund's return. Mason is very aware of the many factors that could minimize the effectiveness of Iitesshiwu kaplanieam conveducstion|seshcoardindex8¢eaSh7.da205afSe ibaG290757 practice/gbank’23035130iqui/@0533902%print exes91672018 Leaming Management System his regression model, and if any are present, he knows he must determine if any corrective actions are necessary. Mason is using a sample size of 121 monthly returns. Question #138 of 191 In order to conduct an F-test, what would be the degrees of freedom used (dfnumerator! fdenominator)? A) 108; 12. B) 11; 120. ©) 12; 108. Question #139 of 191 In regard to multiple regression analysis, which of theffollowing statements is most accurate? A) adjusted R2 is less than R2 B) R2 js less than adjusted R2. ©) adjusted R? always decreases/@sindependent variables increase. Question #140 of 191 Which of ttiesfollowing tests is most likelyto be used to detect autocorrelation? A) Dickey-Fuller, B) Breusch-Pagan. ©) Durbin-Watson, Question #141 of 191 One of the most popular ways to correct heteraskedasticty is to: hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print eas91672018 Learning Management System A) adjust the standard errors, B) improve the specification of the model. ©) use robust standard errors. Question #142 of 191 Which of the following staternents regarding the Durbin-Watson statistic is most accurate? The Durbin-Watson statistic: A) can only be used to detect positive serial correlation, B) is approximately equal to 1 if the error terms are not serially corrélated. ©) only uses error terms in its computations. Question #143 of 191 Ifa regression equation shows that no individual t-tests are significant, but the F-statistic is. significant, the regression probably exhibits: A) heteroskedasticity. B) serial correlation. €) multicollinearity. Question #144 of 191 Which of the following statements regarding the results of a regression analysis is /east accurate? The: A) slope coefficients in the multiple regression are referred to as partial betas. B) slope coefficient in a multiple regression is the change in the dependent variable for a one-unit change in the independent variable, holding all other variables constant. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print oss91672018 Learning Management Sy €) slope coefficient in a multiple regression is the value of the dependent variable for a given value of the independent variable, Question #145 of 191 Consider the following estimated regression equation, with calculated t-statistics of the estimates as indicated: AUTOp= 10.0 + 1.25 Ply + 1.0 TEENy - 20 INSy with a PI calculated rstatstic of 0.45, a TEEN calculated Estatstic of 2.2,ahd an INS calculated fstatstic of 0.63. ‘The equation was estimated over 40 companies. The predicted valuu@of AUTO if Pl is 4, TEEN is 0.30, arid INS = 0.6 is closest. A) 17.50. B) 14.10. © 1490. ‘Werner Baltz, CFA, has regressed 30.years of data to forecast future sales for National Motor Company based on the percent.change in gross domestic product (GDP) and the change in retail price of a U.S. [email protected] fel. The results are presented below. Intercept 78 13.710 AGDP 30.22 12.120 A$ Fuel 412.39 183.981 Regression 291.30 Error 27 132.12 npn kapianleam comledueatonidashooardindexi84eastT73da229SatSe1bsb3a6290757lpracielqpank’73035 39/quie80833002%pxnt oo91672018 Learning Management System Total 29 423.42 Baltz is concerned that violations of regression assumptions may affect the utility of the model, for forecasting purposes. He is especially concened about a situation where the coefficient estimate for an independent variable could take on opposite sign to that predicted, Baltz is also concerned about important variables being left out of the model. He makes the following statement: “if an omitted variable is correlated with one of the independent variables included in the ‘model, the standard errors and coefficient estimates will be inconsistent.” Question #146 of 191 If GDP rises 2.2% and the price of fuels falls $0.15, Baltz's model will, prediet Company sales to be (in $ millions) closest to: A) $82.00 B) $206.00 ©) $128.00 Question #147 of 191 Baltz proceeds to test the hypothesis that none of the independent variables has significant explanatory powerHe concludes that, at a 5% level of significance: AA) at least ofie-of the independent variables has explanatory power, because the calculated Fstatistic exceeds its critical value, B) all of the independent variables have explanatory power, because the calculated F- statistic exceeds its critical value. ©) none of the independent variables has explanatory power, because the calculated F- statistic does not exceed its critical value. Question #148 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print orea91672018 Learning Management System Baltz then tests the individual variables, at a 5% level of significance, to determine whether sales are explained by changes in GDP and fuel prices. Baltz concludes th: A) only GDP changes explain changes in sales. B) both GDP and fuel price changes explain changes in sales. ©) neither GDP nor fuel price changes explain changes in sales Question #149 of 191 With regards to violation of regression assumptions, Baltz should most appropridtely be concerned about: A) Serial correlation. B) Conditional Heteroskedasticity. © Multicollinearity. Question #150 of 191 Regarding the statement aboubomitted variables made by Baltz, which of the following is most accurate? The statement: A) is incorrect about Coefficient estimates but correct about standard errors. B) \correct abpout standard errors but correct about coefficient estimates. ) is correct: Question #151 of 191 Presence of conditional heteroskedasticity is /east /ikely to affect the: A) computed F-statistic B) coefficient estimates. ©) computed t-statistic. Iitesshiwu kaplanieam conveducstion|seshcoardindex8¢eaSh7.da205afSe ibaG290757 practice/gbank’23035130iqui/@0533902%print eas91672018 Learning Management System Question #152 of 191 Wanda Brunner, CFA, Is trying to calculate a ¥8% contidence interval (at = 4U) tor a regression equation based on the following information: Intercept -10.60% 1.357 DR 0.52 0.023 cs 0.32 0.025 Which of the following are closest to the lower end upper bounds for variable C5? A) 0.274 to 0.367, B) 0.260 to 0.381. ©) 0.267 to 0.374. Question #153 of 191 Which of the following statement’ regarding the R2 is /east accurate? A) it is possible for the adjusted-R? to decline as more variables are added to the multiple regression, 8) The adjusted:R? not appropriate to use in simple regres ©) The adjusted-R? is greater than the R? in multiple regression. ‘Autumn Voiku is attempting to forecast sales for Brookfield Farms based on a multiple regression model, Voiku has constructed the following mode!: sales = bo + (by * CPI) + (bz * IP) + (b3 x GDP) + & Where: sales = $ change in sales (in 00's) npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt eo91672018 Learning Management System CPI = change in the consumer price index IP = change in industrial production (millions) GNP = change in GNP (mi 98) All changes in variables are in percentage terms. \Voiku uses monthly data from the previous 180 months of sales data and for the independent variables. The model estimates (with coefficient standard errors in parentheses) are: SALES= |10.2 |+(4.6*CPI) |+(5.2*IP) |+(11.7 x GDP) (5.4) | (3.5) (5.9) (6.8) The sum of squared errors is 140.3 and the total sum of squares is 368.7, Voiku calculates the unadjusted R2, the adjusted R2, and the standafd @rror of estimate to be 0.592, 0.597, and 0.910, respectively. Voiku is concerned that one or more of the assumptions Underlying multiple regression has been violated in her analysis. In a conversation with Daye Gtimbles, CFA, a colleague who is considered by many in the firm to be a quant specialist, Voiku says, “It is my understanding that there are five assumptions of a multiple regfession model” There is a linear relationship between the dependent and Assumption 1: | idependentvariables. The independent variables are not random, and there is Assumption 2: |zero correlation between any two of the independent Variables. The residual term is normally distributed with an expected Assumption 3: value of zero. Assumption 4: | The residuals are serially correlated. Assumption 5: | The variance of the residuals is constant. Grimbles agrees with Miller's assessment of the assumptions of multiple regression. \Voiku tests and fails to reject each of the following four null hypotheses at the 99% confidence interval. Hypothesis The coefficient on GOP is negative. Hypothesis 2: |The intercept term is equal to ~4, hitpshiwu kaplanleam comveducation/seshboardindexi8¢eash7.Ida205afSe issb3a8290757 practice/gbank’23035130iquie/@0533902%print Toee91672018 Learning Management System Hypothesis 3: | A 2.6% increase in the CPI will result in an increase in sales of more than 12.0%. Hypothesis 4: A 1% increase in industrial production will result in a 1% decrease in sales. Figure 1: Partial table of the Student's t-distribution (One-tailed probabilities) 170 1.287 1.654 1.974 2.348 2.605 176 1.286 1.654, 1.974 2.348 2.604 180 1.286 1.653 1.973 2.347 2.603 Figure 2: Partial F-Table critical values for right-hand tail area equal t0 0.05 df2 = 170 3.90 265 | 2.27 df2 = 176 3.89 2.66 2.27 df2 = 180 3.89 2.65 2.26 Figure 3: Partial F-Table critical values for right-hand tail area equal to 0.025 df2 = 170 Sel] 3.19 2.64 df2 = 176 $7 3.19 2.64 df2 = 180 5.11 3.19 2.64 Question #154 of 191 Concerning the assumptions of multiple regression, Grimbles is: A) incorrect to agree with Voiku's list of assumptions because one of the assumptions is. stated incorrectly. B) incorrect to agree with Voiku's list of assumptions because two of the assumptions are stated incorrectly. ©) correct to agree with Voiku's list of assumptions. npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt 8891672018 Learning Management System Question #155 of 191 For which of the four hypotheses did Voiku incorrectly fail to reject the null, based on the data given in the problem? A) Hypothesis 2. B) Hypothesis 3. ©) Hypothesis 4. Question #156 of 191 The most appropriate decision with regard to the F-statistic for testing(thnull hypothesis that all of the independent variables are simultaneously equal to zero at the S percent significance level Is to: A) fail to reject the null hypothesis because the F-statisticis smaller than the critical F-value of 2.66. B) reject the null hypothesis because the F-statistic is larger than the critical F-value of 3.19. ©) reject the null hypothesis because the F-statistic is larger than the critical F-value of 2.66. Question #157 of 191 Regarding Voiku's calculations of R and the standard error of estimate, she is: A) incorrect in her calculation of both the unadjusted R2 and the standard error of estimate. B) incorrect in her calculation of the unadjusted R? but correct in her calculation of the standard error of estimate. ©) correct in her calculation of the unadjusted R? but incorrect in her calculation of the standard error of estimate. hites:hiwu kaplanieam comvecication sesheoarcindex/8¢easi7.da205afSe isba8290757 practice/gbank’23035139/quie/@0533902%print 8891672018 Learning Management System Question #158 of 191 ‘The multiple regression, as specified, most likely suffers from: A) mutticollinearity. B) serial correlation of the error terms. ©) heteroskedasticity. Question #159 of 191 ‘4.90 percent confidence interval for the coefficient on GDP is: A) -1.5to 20.0, B)0St0 229. ©) -1.9t0 19.6. ‘Som Muttney has been asked to forecast th¢ level 6f operating profit for a proposed new branch of a tire store, His forecast is che coinponent in forecasting operating profit for the entire company for the next fiscal year. Muttney decide to conduct multiple regression analysis using "branch store operating profit. a5 the dependent variable and three independent, variables. The three independent variables are ‘population within 5 miles of the branch,” "operating hours per wébk,\ ard "square footage of the facility.” Muttney used data on the company's existing2a\branches to develop the model (n=23).. Intercept 103,886 2.740 Population within 5 miles (x) 4.372 2.133 Operating hours per week (Xa) 214,856 0.258 Square footage of facility (X3) 6.767 2.643 npn kaplanleam comleduestonidashboardindexi84eastT/3da229Sat8e1bsb’a6200757lpracielqank’23035139/quie/80833002%pxnt ree91672018 Learning Management System Regression sum of squares 6,349 | Sum of squares total 10,898 | _ DS seuewe Degrees of Freedom| —.20 10 05 02 01 3 1.638 | 2.353 | 3.182 | 4.541 | 5.841 19 1.328 | 1.729 | 2.093 | 2.539 | 2.861 23 1319 | 1.714 | 2069 | 250 | 2807 In his research report, Muttney claims that when the square footage of the stores increased by 196, aperating profit will increase hy more than 5% Question #160 of 191 The 95% confidence interval for slope coefficient for indeperident Variable "populati closestto’ A) 0.081 ~ 8.66 B) -0.81 ~ 9.56 ©) -0.086 - 8.83 Question #161 of 191 “The probability of fining a value of ror variable x; that is as-large or larger than | 2.133] wnen the null hypothesis is true is: A) between 1% and 2%. B) between 2% and 5%, ©) between 5% and 10%. Question #162 of 191 npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt ra91672018 Leaming Management System The correlation between the actual values of operating profit and the predicted value of operating profit is closest to: A) 053 B) 0.76 0) 036 Question #163 of 191 Regarding Muttney’s claim about a 5% inercasc in operating profit for a 1% inérede in square footage, the most appropriate null hypothesis and conclusion (at a 5% levé)of significance) are: iz ull Hypothesis Conclusion Fail to reject ) Horbs25 4 B) Ho:b3<5 Reject Ho c , ig byes Falltoreject Ho Question #164 of 191 ‘The standard deviation of regression residuals is closest to: A) 239.42 B) 0.42 ©) 15.47 Question #165 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print rs8891672018 Learning Management System The operating profit model as specified is most likelya: A) Time series regression B) Cross-sectional regression ©) Autoregressive model Question #166 of 191 Which of the following is feast likely a method used to detect heteroskedasticity?, A) Scatter plot. B) Durbin-Watson test. © Breusch-Pagan test. Question #167 of 191 A variable is regressed against three other Variables, x, y, and z. Which of the following would NOT be an indication of multico! 087it/2 Kis closely related to: A) 3y +22. B) 9y-42+3 Oye Question #168 of 191 ‘Assume that in a particular multiple regression model, it is determined that the error terms are uncorrelated with each other. Which of the following statements is most accurate? A) This model is in accordance with the basic assumptions of multiple regression analysis because the errors are not serially correlated. B) Serial correlation may be present in this multiple regression model, and can be confirmed only through a Durbin-Watson test. hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print ree9162018 Leaning Management System ©) Unconditional heteroskedasticity present in this model should not pose a problem, but can be corrected by using robust standard errors. Question #169 of 191 Consider the following estimated regression equation, with calculated t-statistics of the estimates as indicated: AUTOp= 10.0 + 1.25 Ply + 1.0 TEEN, ~ 2.0 INS with a PI calculated Fstarstic of 0.45, a TEEN calculated rstarstic of 2.2, and an INS calculated fstatstic of 0.63. ‘The equation was estimated over 40 companies. Using a 5% level.ofsigiificance, which of the independent variables significantly different from zero? A) Pl and INS only. B) Plonly. ©) TEEN only. Question #170 of 194. Jacob Warner, CFA, iS 2Valuating a regression analysis recently published in a trade journal that hypothesizes thatthe annual performance of the S&P 500 stock index can be explained by movements in the Federal Funds rate and the U.S. Producer Price Index (PPI). Which of the following statements regarding his analysis is mmos¢ accurate? A) Ifthe p-value of a variable is less than the significance level, the null hypothesis cannot, be rejected. B) If the tvalue of a variable is less than the significance level, the null hypothesis cannot be rejected, ©) If the p-value of a variable is less than the significance level, the null hypothesis can be rejected. hitps:hiwu kaplanleam conveducation/sesheoardindex/8¢eaSh7 da205afSe issb3aG290757 practicelgbank’23035130Iquie/@0533902%print Tre891672018 Learning Management System Question #171 of 191 ‘An analyst regresses the return of a S&P 500 index fund against the S&P 500, and also regresses the return of an active manager agairst the S&P 500. The analyst uses the last five years of data in both regressions, Without making any other assumptions, which of the following is most accurate? The index fund A) should have a higher coefficient on the incependent variable B) should have a lower coefficient of determination. €) regression should have higher sum of squares regression as a ratio to the total sum of, squares. Quin Tan Liu, CPAs looking at the retail property sector for her manager. He is undertaking a top down review as she feels this is the best way to analyze the jifdustry segment. To predict, U.S property starts (housing), she has used regression analysts) Liu included the following variables in his analysis ‘© Average nominal interest rates during each yaar las a decimal) ‘© Annual GDP per capita in $'000 Given these variables the following outputwas generated from 30 years of data: Exhibit 1 - Results from regressing housing starts (in millions) on interest rates and GDP per capita [coefficient | standarderror | t-statistic Intercept 0.42 34 Interest rate -1.0 -2.0 GDP per capita 0.03 07 ANOVA df ss Mss F Regression 2 3.896 1.948 21.644 Residual 27 2.431 0.090 Total 29 6.327 Observations 30 Durbin 1.22 Watson hntpshiwu kaplanleam comveducstion/sesheoarcindex8¢eaSh7 Ida205afSe issb3a6290757 practice/gbank’23035139iquie/@0533902%print Tavee91672018 Learning Management System Exhibit 2 - Critical Values for Student's t-Distribution Degrees of Area in Upper Tail Freedom 5% 2.5% 26 1.706 2.056 27 1.703 2.052 28 1,701 2,048 29 1.699 2.045 30 1.697 2.040 31 1.696 2.040 Exhibit 3 - Critical Values for F-Distribution at 5% Level of Significance Degrees of Freedom | Degrees of Freedom (af) for the Numerator for the Denominator 1 2 3 26 4.23 3.37 2.98 27 424 3.35 2.96 28 4:20 3.34 2.95 29 4.18 3.33 2.93 30 > 417 3.32 2.92 31 4.16 3.31 2.91 32 415 3.30 2.90 ‘The'following variable estimates have been made for 20X7 GDP per capita = $46,700 Interest rate = 7% Question #172 of 191 Using the regression model represented in Exhibit 1, what is the predicted number of housing. starts for 20x72 A) 1,394,420 hitps:/wkaplanlear comleducation|dashooardindex 84eaSA7da3205afSe b6b3a8200757 practce/gbank’23035 138/quz/80533902%pint raVe@91672018 Learning Management System B) 1,394 ©) 1,751,000 Question #173 of 191 ‘The 90% confidence interval for the interest rate coefficient is: A) -3.000 to +1.000 B) -1.850 to -0.151 ©) -1.852 to -0.149 Question #174 of 191 Is the regression coefficient for the interest rate sighificantly different from zero at the 5% level of significance? A) No, because | -2.0| < 2.045 B) No, because | 2.0] < 2.052 ©) Yes, because | -2.0|> 1.703 Question:#175 of 191 Which of the following statements best describes the explanatory power of the estimated regression? A) The large F statistic indicates that both independent variables help explain changes in housing starts. B) The residual standard error of only 0.3 indicates that the regression equation is a good fit for the sample data ©) The independent variables explain 61.58% of the variation in housing starts. hites:hiwu kaplanlear comvecication seshcoardindex/8¢easi7.Ida205afSe iba8290757 practice/gbank’23035139/quie/@0533902%print sos91672018 Learning Management System Question #176 of 191 ‘The estimated standard deviation of housing starts (in millions) is closest to: A) 0.47 B) 0.22 003 Question #177 of 191 Which of the following is the least appropriate statement in relation to R-square and adjusted Resquare: A) Adjusted R-square decreases when the added independent Variable adds little value to the regression model B) Adjusted R-square is a value between 0 and 1, and canbe interpreted as a percentage ©) R'square typically increases when new indepi@ndent variables are added to the regression regardless of their explanatory power Question #178 of 191 ‘An analyst further stidiesithe independent variables of a study she recently completed. The correlation matrix shown below is the result. Which statement best reflects possible problems with a multivariate regression? Age 1.00 Education 0.50 1.00 Experience 0.95 0.55 1,00 Income 0.60 0.65 0.89 1.00 AA) Age should be excluded from the regression. B) Experience may be a redundant variable. npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt vee91672018 hntpssiwu kaplan Leaming Management System ©) Education may be unnecessary. Question #179 of 191 Seventy-two monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the Wilshire 5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if the return is from a ‘month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half of the year. There are 36 observations when dummy variable ongequals 0, half of which are when dummy variable two also equals zero, The following arc thé\estimated coefficient values and standard errors of the coefficients. Market 1.43000 0.319000 Dummy 1 0.00162 0.000675, Dummy 2 0.00132 0,000733 What is the p-value for a test of the hypothesis that the beta of the fund is greater than 1? A) Lower than 0.01 B) Between 0.01 and 0.05. ©) Between 0.05 and 0.10. Kathy Williaris, CFA, and Nigel Faber, CFA, have been managing 2 hedge fund over the past 18 ‘months. The fund's objective is to eliminate all systematic risk while earning a portfolio return greater than the return on Treasury Bills. Williams and Faber want to test whether they have achieved this objective. Using monthly data, they find that the average monthly return for the fund was 0.417%, and the average return on Treasury Bills was 0.384%. They perform the following regression (Equation I (fund returnyt = bo + b; (T-bill return) ;+ bo (S&P 500 return) + b3 (global index return) «+ er ‘The correlation matrix for the independent variables appears below: sm comedueatonidashooardindexi8seast3da2295at8ebsb3a6200757pracicelqbank’22035139/qui80833002%pxnt e28891672018 Learning Management System T-bill 0.163 0.141 ‘S&P 500 0.484 In performing the regression, they obtain the following results for Equation I: Intercept 0.232 0.098 T-bill return, 0.508 0.256 ‘S&P 500 Return 0.0161 0.032 Global index return 0.0037 0.034 2 adj. R? = 5.81% standard error of forecast = 0.0734 (percent) Williams argues that the equation may suffer fromaulticollinearity and reruns the regression omitting the return on the global index. This timepthe regression (Equation Il) is: (fund return) «= bo +b; (T- ill¥etuitn); + ba (S&P 500 return) « +e, ‘The results for Equation Il are: Intercept 0.232 0.095 T bill return’ 0.510 0.246 ‘S&P 500 return 0.015 0.028 R= 22.37% adj. R2= 12.02% standard error of forecast = 0.0710 (percent) Based on the results of equation Il, Faber concludes that a 1% increase in t-bill return leads to ‘more than one half of 1% increase in the fund return, npn kaplanleam comledueatonidashooardindexia4east73da229Sat8e bsb’a8200757lpracielqbank’230351391qul/80833002%pxnt save91672018 Ines kaplan Learning Management System Finally, Williams reruns the regression omitting the return on the S&P 500 as well. This time, the regression (Equation Ill is: (fund return) ¢ = bo +b; (T-bill return) ; +e, The results for Equation Ill are: Intercept 0.229 0.093 Till return 0.4887 0.2374 R? = 20.94% adj. R= 16.00% standard error of forecast = 0.0693 (percent) Question #180 of 191 In the regression using Equation |, which of the following hypotheses can be rejected at 2 5% level of significance in a two-tailed test? (The/€Btresponding independent variable is indicated after each null hypothesis.) A) Ho: by = (T-bill) B) Ho: bz = 0 (S&P 500) ©) Ho: bg = 0 (intercept) Question #181 of 191 In the regression using Equation Il, which of the following hypothesis or hypotheses can be rejected at a 5% level of significance in a two-tailed test? (The corresponding independent variable is indicated after each null hypothesis.) A) Ho: bg = 0 (intercept) only. B) Ho: bg = 0 (intercept) and b, = 0 (T-bill) only. ©) Ho: by =0 (T-bill) and Ho: bz = 0 (SRP 500) only. sn-comieduestonidashooardindexi8deaStT3da20Sat8e1bsb3a6200757lpracicelqbank’23035139/quie/80833002%pxnt sae91672018 Learning Management System Question #182 of 191 with respect to mutticollinearity and Williams’ removal of the global index variable wnen running regression Equation Il, Wiliams had: A) reason to be suspicious, but she took the wrong step to cure the problem. B) no reason to be suspicious, but took a correct step to improve the analysis. ©) reason to be suspicious and took the correct step to cure the problem. Question #183 of 191 Regarding Faber’s conjecture about impact of t-ill return in equation I, the most appropriate null hypothesis and most appropriate conclusion (at a 5% level of significance) is: Null ,. Conclusion Hypothesis A) i Harb; 20.5 Falltoreject Ho> 8) Hob, $0.5 Reject Hg ° Hig:b, 0.5 Falltoreject Ho Question #184 of 191 Which of the following problems, multicollinearity and/or serial correlation, can bias the estimates of the slope coefficients? A) Neither multicollinearity, nor serial correlation. B) Both multicollinearity and serial correlation. ©) Multicollinearity, but not serial correlation. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print ase91672018 hitpssNiwc kaplan Learning Management System Question #185 of 191 Itwe expect that next month the |-bill rate will equal its average over the last 18 months, using Equation Ill, calculate the 95% confidence interval for the expected fund return. A) 0.296 to 0.538. B) 0.259 to 0.598. ©) 0.270 to 0.564. Question #186 of 191 Which of the following statements most accurately interprets the fallowing regression results at the given significance level? Intercept 0.0201 x1 0.0284 x2 0.0310 x3 0.0143 A) The variable X3 is statistically significantly different from zero at the 2% significance level. B) The varlablés XT and x2 are statistically significantly different from zero at the 2% significance level. €) The variable X2 is statistically significantly different from zero at the 3% significance level Question #187 of 191 Which of the following statements least accurately describes one of the fundamental multiple regression assumptions? 1m comieducatonidashooardindexi8seastT73da229Sat8e1bsb’a8200757lpracice/qank’230351391qule/0833002%pxnt ss91672018 Learning Management System A) The variance of the error terms is not constant (i., the errors are heteroskedastic). B) The error term is normally distributed. €) The independent variables are not random. Question #188 of 191 ‘An analyst is trying to estimate the beta for a fund. The analyst estimates a regression equation in which the fund returns are the dependent variable and the Wilshire 5000 is the independent variable, using monthly data over the past five years. The analyst finds that the eorrélation between the square of the residuals of the regression and the Wilshire 5000 is 0:2. Which of the following is most accurate, assuming a 0.05 level of significance? There A) evidence of conditional heteroskedasticity but not serial coftelation in the regression equation. B) no evidence that there is conditional heteroskedasticity or serial correlation in the regression equation. ©) evidence of serial correlation but not conditional heteroskedasticity in the regression equation. Question #189 of.191 Which of the followitigis /east likely a method of detecting serial correlations? A) A scattéhplot of the residuals over time. B) The Durbin-Watson test. ©) The Breusch-Pagan test. Question #190 of 191 hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print e7889162018 Leaming Management System ‘An analyst is estimating whether company sales is related to three economic variables. The regression exhibits conditional heteroskedasticty, serial correlation, and multicollinearity. The analyst uses Hansen's procedure to adjust for the standard errors, Which of the following is. mast areueate? The A) regression will still exhibit multicollinearity, but the heteroskedasticity and serial correlation problems will be solved. B) regression will still exhibit serial correlation and multicollinearity, but the heteroskedasticity problem will be solved. ©) regression will still exhibit heteroskedasticty and multicollinearity, but the serial correlation problem will be solved. Question #191 of 191 ‘An analyst is estimating whether a fund's excess return for a month is dependent on interest rates and whether the S&P 500 has increased or déereased during the month. The analyst collects 90 monthly return premia (the return of{thefund minus the return on the S&P 00 benchmark), 80 monthly interest rates, and 80 monthly S&P 500 index returns from July 1999 to December 2006. After estimating the régression equation, the analyst finds that the correlation between the regressions residualsyfrom one period and the residuals from the previous period is 0.145 (DW=1.71), Which of thé following is most accurate at a 0.05 level of significance, based solely on the information provided? The analyst. A) can conclude that therregression exhibits heteroskedasticity, but cannot conclude that the regression.exhit its serial correlation, B) cannot eancluide that the regression exhibits either serial correlation or heteroskedasticity. ©) can conclude that the regression exhibits serial correlation, but cannot conclude that the regression exhibits heteroskedasticity. hiteshiwu kaplanieam convecucation|seshcoardindex/8¢eaSh7 da 3205afSe iba8290757 practice/gbank’23035130iquia/@0533902%print eevee