SUMMARY OUTPUT Regression Statistics Multiple R 0.868313283 R Square 0.753967957
ID: 3398342 • Letter: S
Question
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.868313283
R Square
0.753967957
Adjusted R Square
0.740299511
Standard Error
8.769476742
Observations
20
ANOVA
df
SS
MS
F
Significance F
Regression
1
4242.101773
4242.101773
55.16120214
6.94512E-07
Residual
18
1384.267002
76.90372233
Total
19
5626.368775
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept
0.24635305
2.098289739
0.117406593
0.907838006
-4.16199011
4.65469621
-4.16199011
4.65469621
Excess rate of return Market
1.475039082
0.198603394
7.427058781
6.94512E-07
1.057788834
1.89228933
1.057788834
1.89228933
Using above output,
Assuming that the market return for the coming year is expected to be 12% and that the risk-free rate is expected to be 8 %, use market model (your regression model) to estimate the expected rate of return to the firm’s shareholders for the coming year.
(Hint: You will first need to calculate the expected excess rate of return for the market. To calculate the expected excess rate of return to the firm’s shareholders, you will then plug into the regression model estimated. You will also use the coefficient estimates estimated.)
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.868313283
R Square
0.753967957
Adjusted R Square
0.740299511
Standard Error
8.769476742
Observations
20
ANOVA
df
SS
MS
F
Significance F
Regression
1
4242.101773
4242.101773
55.16120214
6.94512E-07
Residual
18
1384.267002
76.90372233
Total
19
5626.368775
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept
0.24635305
2.098289739
0.117406593
0.907838006
-4.16199011
4.65469621
-4.16199011
4.65469621
Excess rate of return Market
1.475039082
0.198603394
7.427058781
6.94512E-07
1.057788834
1.89228933
1.057788834
1.89228933
Explanation / Answer
E( excess rate of return) = E(market return) - E(risk free rate)
= 0.12 - 0.08 = 0.04
E( rate of return) = 0.24635305 + 1.475039082×0.04
= 0.31 = 31%
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