14th Edition

ISBN: 9780134684840

Author: BERENSON, Mark L., Levine, David M., Szabat, Kathryn A.

Publisher: Pearson,

Concept explainers

Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.

Linear Correlation

A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.

Regression Analysis

Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as p…

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Textbook Question

Chapter 14, Problem 11PS

A financial analyst engaged in business valuation obtained financial data on 60 drug companies (industry Group SIC 3 code: 283). The file BusinessValuation contains the following variables:

Company-Drug Company name

PB fye-Price-to-book-value ratio (fiscal year ending)

ROE-Return on equity

SGrowth-Growth (GS5)

a. Develop a regression model to predict price-to-book-value based on return on equity.

b. Develop a regression model to predict price-to-book-value based on growth.

c. Develop a regression model to predict price-to-book-value based on return on equity and

growth.

d. Compute and interpret the adjusted r 2 for each of the three models.

e. Which of these three models do you think is the best predictor of price-to-book value ratio?

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Chapter 14, Problem 10PS

Chapter 14, Problem 12PS

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Chapter 14 Solutions

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Solution Summary: The author explains how to develop a regression model to predict the price to book value ratio based on return on equity.

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