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- The Capital Asset Price Model (CAPM) is a financial model that attempts to predict the rate of return on a financial instrument, such as a common stock, in such a way that it is linearly related to the rate of return on the overal market. Specifically, RStockAiBo + BR Markets + e You are to study the relationship between the two variables and estimate the above model: R StockAi-rate of return on Stock A for month i, i = 1,2,---, 59. RMarket-market rate of return for month i, i=1,2,..., 59. B₁ represent's the stocks 'beta' value, or its systematic risk. It measure's the stocks volatility related to the market volatility. Bo represents the risk-free interest rate. The data in the .csv file contains the data on the rate of return of a large energy company which will be referred to as Acme Oil and Gas and the corresponding rate of return on the Toronto Composite Index (TSE) for 59 randomly selected months. Therefore Re, represents the monthly rate of return for a common share of Acme Oil…Suppose that index model for Stocks A and B is estimated from excess returns with the following results : Ra 0.04 +0.6Rm+ea , Rb = - 0.04 + 1.3Rm + eb Risk on the market is 30% , R-squared of A is 30%R - squared of B is 40% , security A residual variance isIt can be conjectured that the annual return a security and the market return are related by the following regression model y=mx+b+ε Where y is the annual return of the security, x is the annual return of the market, b is the intercept, Ɛ is the normally distributed noise, and Return = value at end of the year + received dividends during the year - value at the beginning of the year. Test this model by retrieving annual data on a security of your choice. Choose a financial index such as S&P 500 as the indicator of the market, and retrieve the data. Use the most recent 20 years as the time span of the data. Perform regression analysis and make sure to include the hypothesis in your study. Provide your results and write your conclusions. Include all relevant information and conclusions, significances, the final regression model, coefficient of determination, graph of the regression line accompanied in the scatterplot, extent of residuals, and normality of residuals. Does the model…
- It is known that a natural law obeys the quadratic relationship y = ax-. Whatis the best line of the form y = px + q that can be used to model data and minimize Mean-Squared-Error if all of the data points are drawn uniformly atrandom from the domain [0, 1]?A model is built to explain the evolution of spending on tourism and recreation in a certain group of families (Y in USD/person/year). As potential explanatory variables are considered: X1 average annual income per person in the family (in USD), X2 – number of people in the family, X3 – nature of employment of the head of household If X3=1, when the head of the family is self-employed, X3=0, when the head of the family is an employee Based on the collected data, linear correlation coefficients between variables were calculated and obtained 0,84 R, = -0,47 [1 -0,55 0, 62 R= 1 -0,42 0,75 1 Using Hellwig's method, select the optimal combination of explanatory variables for the tourism and recreation expenditure model.2. What are independent and dependent variables from this table ?
- The scatterplot of these two variables reveals a potential outlying month when the average temperature is about 53◦F and average crawling age is about 28.5 weeks. (a) Does this point have high leverage? (b) Is it an influential point?4. An analyst has available two forecasts, F₁ and F2, of earnings per share of a corporation next year. He intends to form a combined forecast as a weighted average of the two individual forecasts. In forming the combined forecast, weight X will be given to the first forecast and weight (1 - X) to the second, so that the combined forecast is XF₁+(1-X)F₂. The analyst wants to choose a value between 0 and 1 for the weight X, but he is quite uncertain of what will be the best choice. Suppose that what eventually emerges as the best possible choice of the weight X can be viewed as a random variable uniformly distributed between 0 and 1, having probability density function fx(x) = 1 for 0 < x < 1, and = 0 for all other values x of the random variable X. (a) Draw the probability density function. 1 (b) Find and draw the cumulative distribution function. (c) Find the probability that the best choice of the weight X is less than .25. (d) Find the probability that the best choice of the weight…9. The following data represents the projected global defense spending (in trillion of dollars) from 2008 (t=0) through 2015(t=7): (0,60), (2,74), (4,90), (6,106), (8,118), (10,128), (12, 150). a) Find the equation of least square. b) what is the global spending of be defense be in 2018?
- Economics 2. (35) Consider the quarterly sales data:datal = {10, 31, 43, 16, 11, 33, 45, 17, 14, 46, 50, 21, 19, 41, 55,25). a) Forecast demand for 6th month by using 2 month MA. b) Forecast demand for 6th month by using by employing EWMA with a= 0:9 .c) Which forecast result you would prefer? and why?A manufacturing firm, Caleb Corp, produces and sells product in its home (US) market, and in a foreign market. There is inherent risk in the revenues collected from the foreign market due to volatility in the exchange rate. Under a benchmark strategy, all of the production takes place in the home country. The resulting expected profits for Caleb Corp are variable, due to variation in the exchange rate. As an approximation, the firm has estimated profits for five possible ranges of the exchange rate, with profit represented as a lottery, L= (.2, 150; .2, 200; .3, 220; .2,250; .1, 270) The probabilities are estimated probabilities for the different ranges. The outcomes in this lottery are the estimated final profit levels (not changes in profit). (a) Calculate the expected profit if the firm follows this benchmark strategy, i.e., E(L)A farmer wants to decide which of the three crops he should plant on his 100-acre farm. The profit from each is dependent on the rainfall during the growing seasons. The farmer has categorized the amount of rainfall as high, medium, low. His estimated profit for each is shown in the table. If the farmer wishes to plant only one crop, decide which will be his choice using the EMV rule, prove your judgement by comparing the EMV of each crop. (Indicate the EMV in each crop, comparison and the right choice).