Consider the following model of stock prices: Price=Bo + Biearning + ɛ. Where earning is the annual profit per share. Price 65 18 45 32 37 52 24 27 19 31 Earning 2.35 0.15 1.15 1.1 1.5 1.6 1 0.55 0.2 0.4 a. Use the method of OLS to estimate the unknown parameters, ßo and B1. Write the regression equation. b. Calculate SSE, s², s, and and S, - c. Test for significance of ßi using a=0.05. Interpret the results. d. Construct a 95% confidence interval for ß1. Interpret the interval. e. Calculate R? and r. Interpret them and test for significance of correlation coefficient using a=0.05

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only need part D, E, F, and G answered.

Consider the following model of stock prices: Price=ßo + Biearning + ɛ. Where earning is the
annual profit per share.
Price
65
18
45
32
37
52
24
27
19
31
Earning
2.35 0.15 1.15 1.1
1.5
1.6
1
0.55
0.2
0.4
a. Use the method of OLS to estimate the unknown parameters, ßo and B1. Write the
regression equation.
b. Calculate SSE, s², s, and and S3, -
c. Test for significance of Bi using a=0.05. Interpret the results.
d. Construct a 95% confidence interval for B1. Interpret the interval.
e. Calculate R? and r. Interpret them and test for significance of correlation coefficient using
a=0.05
f. Predict average price of stocks when earning is $2. Construct a 90% confidence interval
(prediction interval) for the average price.
g. Make a prediction of price of a stock when earning is $2. Construct and interpret a 90%
prediction interval
Transcribed Image Text:Consider the following model of stock prices: Price=ßo + Biearning + ɛ. Where earning is the annual profit per share. Price 65 18 45 32 37 52 24 27 19 31 Earning 2.35 0.15 1.15 1.1 1.5 1.6 1 0.55 0.2 0.4 a. Use the method of OLS to estimate the unknown parameters, ßo and B1. Write the regression equation. b. Calculate SSE, s², s, and and S3, - c. Test for significance of Bi using a=0.05. Interpret the results. d. Construct a 95% confidence interval for B1. Interpret the interval. e. Calculate R? and r. Interpret them and test for significance of correlation coefficient using a=0.05 f. Predict average price of stocks when earning is $2. Construct a 90% confidence interval (prediction interval) for the average price. g. Make a prediction of price of a stock when earning is $2. Construct and interpret a 90% prediction interval
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