Question

This is for my Quantitative Methods class.

Please provide detailed solutions to the following problems/exercise.

1) An investment analyst collected data about 20 randomly chosen biotechnology companies. The data consisted of the 52-week-high stock prices, price-to-earnings (PE) ratio, and the market value of the company. These data are in the file titled Investment.

a) Produce a regression equation to predict the market value using the 52-week-high stock price and the PE ratio of the company.

b) Determine if the overall model is significant. Use a significance level of 0.05.

c) A biotechnology company in April 2018 had a 52-week-high stock price of 31 and a PE ratio of 19. Estimate its market value for that time period. (Note: Its actual market value for that time period was $1,536).

52WK HI 31	P- E 19	Market Value 1536
71	63	8435
32	23	1294
12	18	1265
24	24	1573
48	18	1529
28	66	7888
36	22	1785
20	32	3386
36	46	4399
33	35	2645
64	21	1420
44	26	1941
50	47	3444
30	19	1678
80	15	1627
34	20	4177
48	9	1538
48	14	1544
52	12	1177

Answer 1

1. Put the values in excel as shown below.

2. We use the regression option under the Data analysis tab.

3. Input the data as shown below.

4. The output will be generated as following

5. We formulate the regression equation using the output (highlighted in green)

Write the reqression equation
Market Value = -977.12+ 11.1996(WK HI)+117.7205(PE)

Discuss the statistical significance of the model as a whole using the appropriate regression statistic at a 95% level of confidence.

For this we look that pvalue of the Anova. The Pvalue of anova (highlighted in blue)
Since the pvalue is less than 0.05, the model is significant.

Interpret the coefficient for the independent variable.
One unit increase in the WK HI increases the market value by 11.1996
One unit increase in the PE increases the market value by 117.7205

What percentage of the observed variation in housing prices is explained by the model?
Variation explained by the model is given by the Rsquare (highlighted in blue) which 0.8244
Note - Higher the number, better the model is.

A biotechnology company in April 2018 had a 52-week-high stock price of 31 and a PE ratio of 19. Estimate its market value for that time period. (Note: Its actual market value for that time period was $1,536).
Market Value = -977.12+ 11.1996(WK HI)+117.7205(PE) = -977.12+ 11.1996(31)+117.7205(19)=1606.7551