Question

For a sample of 25 monthly observations, a financial analyst wants to regress the percentage
rate of return (Y) of the common stock of a corporation on the percentage rate of return ( X)
of standard and Poor’s 500 Index. The following information is available:
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a. Compute the sample correlation coefficient and interpret your answer. ( 3 marks)
b. Test to determine the significance of the linear relationship between X and Y. ( 4 marks)
c. Estimate the linear regression of Y on X, and interpret your results. Hence write the
regression line and estimate Y when X is 8%. ( 3marks)

Answer 1