# EE Chapter 9 Problem 12………………………………………

Question Question 1 (4 Points) Carefully follow the instructions on Page 435 and construct two scatterplots: one a a new tab labeled “PE Ratio” with PE Ratio data as the independent variable and the associated Return data as the dependent variable and a second scatterplot on a new tab labeled “Risk” with Risk data as the independent variable and the associated Return data as the dependent variable. Be sure to properly label each axis. For each scatterplot discuss the linear relatioship between variables. Question 2 (4 Points) Carefully follow the instructions starting on the bottom of Page 443 continuing onto Page 444 and show the regression equation and R-Squared value on each of the scatterplots built in Question 1. What is the regression equation for each independent variable? If you had to choose between the two equations which best estimates Return? Why? Question 3 (4 Points) Looking at the original data we see there is an investment that returned 12.8 percent while having a 12.2 PE Ratio. Using the appropriate results obtained in Question 2 estimate the return for this investment assuming its 12.2 PE Ratio. What is the residual as compared to the actual 12.8 Return? Question 4 (4 Points) Carefully following the information in Sections 9.12 9.13 and 9.14 on a new tab labeled “Multiple Regression” obtain the regression information assuming two independent variables PE Ratio and Risk with Return as the dependent variable. What is the regression equation? This equation should be given in similar form as the equation shown on Page 459 Equation 9.25. Make sure you substitute the appropriate values for bo b1 and b2 from the regression analysis! Which goodness of fit value best measures the relationship between these three variables? Question 5 (4 Points) Looking at the original data we see there is an investment which returned 7.6 percent while having a 7.4 PE Ratio and a Risk Evalution of 1. Using the results obtained in Question 4 estimate the Return on this investment assuming its 7.4 PE Ration and Risk Evaluation of 1. What is the residual as compared to the actual 7.6 return?

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