1. Midterm answer August 9th 2010

2. 1. Calculate the sample variance and standard deviation for X, Y, and Z

3. 2. Calculate the sample covariance betweenX and YX and ZY and Z

4. 3. Calculate the sample correlation betweenX and YX and ZY and Z

5. 4. The following table gives the number of annual unit sales for Home and mortgage rates for four recent years. How would you explain the relationship of Home sales and mortgage rate along the different years that data were collected? Negative relationship – sales decrease as interest rate increases

6. Bouvier Co. is a Canadian company that sells forestry products to several Pacific Rim customers. Bouvier’s sales are very sensitive to exchange rates. The following table shows recent annual sales (in millions of Canadian dollars) and the average exchange rate for the year (expressed as the units of foreign currency needed to buy one Canadian dollar)

7. Find the average exchange rates and sales over the years used to collect data Find mean How much does the exchange rates and sales deviate from their respective average? Find standard deviation

8. What is the sample covariance between the exchange rates and sales? What does covariance explain? This Sample Covariance explains the strength of relationship between Exchange rate and sales What is the sample correlation between the exchange rates and sales? What does this explain the exchange rates and sales? Sample correlation explains the sales decrease when exchange rate increases Utilizing just these samples collected over 6 years, can we estimate the sales when the exchange rates equal to zero? Please explain your answer. What is the rate of change of exchange rates with respect to sales?

9. Utilizing just these samples collected over 6 years, can we estimate the sales when the exchange rates equal to zero? Please explain your answer. Find intercept What is the rate of change of exchange rates with respect to sales? Find slope

11. 11. What is the predicted return on the large-cap mutual fund for a market index return of 8.00%?

12. 12. The bid-ask spread for stocks depends on the market liquidity for stocks. One measure of liquidity is a stock’s trading volume. Below are the results of a regression analysis using the bid-ask spread at the end of 2002 for a sample of 1,819 Nasdaq-listed stocks as the independent variable and the natural log of trading volume during December 2002 as the dependent variable. Please fill in the blank

16. 13. What is the value of the coefficient of determination? 14. Where did the number 63.81 (F-value) in the ANOVA table come from? 15. If the ratio of net income to sales for a restaurant is 5%, what is the predicted ratio of cash flow from operations to sales?

18. 16. Utilizing information of question 13-15, Suppose that you deleted several of the observations that had small residual values and you re-evaluate your regression model using the reduced samples. Note: explain your answer What would happen to the standard error of the estimate? Increase What would happen to R-squared? Decrease Deleting observations with small residuals will degrade the strength of the regression, resulting in an increase in the standard error and a decrease in R-squared