Gold Trackers monitors the price of precious metals, and has daily data on prices and sales of gold for the past several years. One of their new MBA financial wizards has estimated the following relationship for gold sales in the past year of trading (250 observations): Q = 4000 – 0.01 P + 1.5 I – 1.25 X + 2.0 S (857) (0.002) (0.65) (0.44) (0.48) R 2= 0.96 Where Q = daily sale of gold in ounces, P is the price of gold in dollars per ounce, I is the most recent one-month report on US CPI i
Correlation
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 predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
Problem # 2
Gold Trackers monitors the price of precious metals, and has daily data on prices and sales of gold for the past several years. One of their new MBA financial wizards has estimated the following relationship for gold sales in the past year of trading (250 observations):
Q = 4000 – 0.01 P + 1.5 I – 1.25 X + 2.0 S (857) (0.002) (0.65) (0.44) (0.48)
R 2= 0.96
Where Q = daily sale of gold in ounces, P is the price of gold in dollars per ounce, I is the most recent one-month report on US CPI inflation (in percent), X is an index on the exchange rate of the US dollar compared to seven other currencies, and S is the market price of an ounce of silver in dollars. Standard errors are in parentheses.
a) Evaluate the results of this regression. Compute t-statistics and F-statistic.
b) Recently the price of gold has been $380 per ounce, inflation was measured at 0.2% for the month, the dollar has been trading at 99.7 on the foreign exchange index, and silver has been steady at $4.75 per ounce. What is the expected quantity of gold that will trade on a daily basis?
c) Are gold and silver substitutes or complements? Explain.
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