Investment analysts generally believe the interest rate on bonds is inversely re
ID: 3205967 • Letter: I
Question
Investment analysts generally believe the interest rate on bonds is inversely related to the prime interest rate for loans; that is, bonds perform well when lending rates are down and perform poorly when interest rates are up. Can the bond rate be predicted by the prime interest rate? Use the following data to construct a least squares regression line to predict bond rates by the prime interest rate.
Do not round the intermediate values. (Round your answers to 3 decimal places.)
The bond rate
be predicted by the prime interest rate.
y = ________+ ________ x
Explanation / Answer
Let,
X = Prime Interest Rate
Y = Bond Rate
x
y
15
5
6
13
8
9
6
14
7
7
In Excel we go to Data and there we can find Data Analysis. There we select Regression Analysis. We click there and we get spaces to input y and x values. We do that and we click on OK. We get the Regression output as below:
Regression Statistics
Multiple R
0.776746969
R Square
0.603335853
Adjusted R Square
0.471114471
Standard Error
2.797768008
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
35.71748
35.71748
4.563
0.1223
Residual
3
23.48252
7.827506
Total
4
59.2
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Intercept
16.238
3.349813
4.847363
0.016754
5.577161057
26.89836
X Variable 1
-0.790
0.369925
-2.13614
0.122299
-1.967476247
0.387057
Here the p-value for F-test statistics is .1223 which is greater than .05 (level of significance). The null hypothesis cannot be rejected and we can conclude that at 5% level of significance there is no sufficient evidence to conclude that the bond rate can be predicted by the prime interest rate.
Answer: The bond rate cannot be predicted by the prime interest rate.
Answer: y^ = 16.238 – 0.790x
x
y
15
5
6
13
8
9
6
14
7
7
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