Price/Book Value Ratio Return on Equity Growth% 1.559 12.985 6.435 8.227 11.953

Question

Price/Book Value Ratio   Return on Equity   Growth%
1.559   12.985   6.435
8.227   11.953   135.724
1.968   12.324   0.094
6.526   25.118   14.293
1.274   8.871   22.675
3.379   37.962   18.974
2.356   25.666   24.539
5.191   19.749   11.623
2.286   22.802   49.786
7.704   69.701   36.799
0.479   3.783   41.019
2.429   9.156   28.818
7.554   29.266   52.023
5.198   17.671   25.119
2.052   29.315   23.815
4.788   31.538   9.541
2.236   14.684   18.431
4.166   11.915   39.149
1.929   14.238   39.369
1.508   14.121   27.179
2.007   14.932   13.213
4.964   20.695   17.253
2.313   14.954   15.997
2.167   5.528   16.735
2.957   11.145   8.263
1.817   16.263   18.246
5.561   23.924   16.759
4.663   14.645   46.445
2.582   6.304   34.084
1.623   19.046   8.475
8.486   38.874   15.014
2.304   15.131   25.178
2.941   19.684   0.272
7.414   18.302   3.216
3.337   20.599   9.555
2.878   34.679   7.131
2.471   15.577   9.522
1.287   10.269   4.701
3.005   23.618   4.152
10.307   91.428   13.293
2.029   1.513   15.787
1.583   9.332   5.683
2.015   19.367   0.023
7.176   4.992   102.708
1.322   42.774   1.487
5.649   90.803   74.132
6.529   19.437   9.017
2.706   27.216   34.547
3.346   13.077   12.155
6.875   24.518   11.585
13.725   82.052   24.547
4.147   1.361   20.249
7.233   3.585   22.229
6.014   31.576   49.885
1.031   4.976   13.169
9.351   47.842   61.232
1.347   13.379   10.825
0.973   36.106   9.127
3.816   28.671   70.991
3.666   18.018   51.854
2.167   14.016   17.059
10.111   133.097   171.254
4.271   21.871   8.598
8.462   11.231   247.734
2.063   17.326   10.768
4.185   19.502   6.334
2.366   8.593   24.524
3.048   18.637   14.164
4.512   21.689   5.873
4.951   49.554   31.363
2.175   19.336   3.844

A financial analyst engaged in business valuation obtained financial data on 71 drug companies. Let Y correspond to the price-to-book value ratio, X, correspond to the return on equity, and X2 correspond to the growth percentage. Use the accmpanying data to complete parts a. through e. below. Click the icon to view the business valuation data a. Develop a regression model to predict price-to-book-value ratio based on return on equity (Round to four decimal places as needed.)

Explanation / Answer

Given the Price/Book Value Ratio and the equity,the fitted linear regression model obtained by minimising sum of squares due to error, is

Yi = 2.345+0.0702 X1i

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