2.14 A. Estimate a multiple regression model using the given data. include linea

Question

2.14

A. Estimate a multiple regression model using the given data. include linear term as well as an interaction term involving the return on average equity (x^1) and annual dividend rate (x^2).

B. which of the three explanatory variables (x^1,x^2, and x^1x^2) should be included in a final version of this regression model? explain. Does your conclusion makes sense in light of your knowledge of corporate finance?

need this done in excel

Electric Utility Stock Price Return Average Equity Annual Dividend Rate 1 $23 13.7 2.36 2 $34 12.8 3.12 3 $20 6.9 2.48 4 $24 12.7 2.36 5 $20 15.3 1.92 6 $13 13.3 1.60 7 $33 14.6 3.08 8 $15 15.8 1.52 9 $26 12.0 2.72 10 $25 15.3 2.56 11 $26 15.2 2.80 12 $20 13.7 1.92 13 $28 15.4 2.92 14 $25 15.2 2.60 15 $30 17.3 2.76 16 $20 13.9

2.14

Stock market analysts are continually looking for reliable predictors of stock prices. Consider the problem of modeling the price per share of electric utility stocks (Y). Two variables thought to influence this stock price are return on average equity (X1) and annual dividend rate (X2). The stock price, returns on equity, and dividend rates on a randomly selected day for 16 electric utility stocks are provided in the file P10_19.xlsx

Explanation / Answer

Call:

lm(formula = StockPrice ~ ReturnAverageEquity + AnnualDividendRate +

AnnualDividendRate * ReturnAverageEquity, data = t1)

Residuals:

Min 1Q Median 3Q Max

-2.4466 -0.9414 -0.3796 1.5063 2.3379

Coefficients:

---

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 1.619 on 12 degrees of freedom

Multiple R-squared: 0.9383, Adjusted R-squared: 0.9229

F-statistic: 60.85 on 3 and 12 DF, p-value: 1.572e-07

only Annual dividend rate is significant

Estimate Std.error tvalue Pr(>|t|) significance (Intercept) -44.682 25.24 -1.77 0.102 ReturnAverageEquity 2.88 1.741 1.654 0.124 AnnualDividendRate 25.062 10.029 2.499 0.028 * ReturnAverageEquity:AnnualDividendRate -0.959 0.691 -1.388 0.19

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