In response to the global financial crisis, Federal Reserve leaders continue to
ID: 3380141 • Letter: I
Question
In response to the global financial crisis, Federal Reserve leaders continue to keep the short-run target interest rate near zero. While the Fed controls short-term interest rates, long-term interest rates essentially depend on supply/demand dynamics, as well as longer-term interest rate expectations. Consider the following annualized rates for 3-month Treasury yields and 10-year Treasury yields. Use Table 2.
In response to the global financial crisis, Federal Reserve leaders continue to keep the short-run target interest rate near zero. While the Fed controls short-term interest rates, long-term interest rates essentially depend on supply/demand dynamics, as well as longer-term interest rate expectations. Consider the following annualized rates for 3-month Treasury yields and 10-year Treasury yields. Use Table 2.
Explanation / Answer
b)
Using technology, we get
slope = 0.304239253
intercept = 3.515583863
Thus, the regression line is
10 year yield^ = 3.515583863 + 0.304239253 *(3 month yield) [ANSWER]
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c)
Also, getting the correlation,
r = 0.826155585
Thus, the coefficient of determination is
r^2 = 0.68253305 = 68.25%.
Thus, it is OPTION C. [ANSWER]
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d)
As t = r sqrt [(n - 2) / (1 - r^2)], then
t = 4.147224797
As alpha = 0.05
df = 8
Then
tcrit = 2.306004135
There is significant evidence that correlation between the variables is significant. [YES]
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