In a study of the demand for life insurance, Executive Insurers, Inc. is examining the factors that affect the amount of life insurance held by executives. The following data on the amount of insurance and annual incomes of a random sample of 12 executives were collected.
Observation Amount of Life Insurance Annual Income
(X $1,000) (X $1,000)
1 90 50
2 180 84
3 225 74
4 210 115
5 150 104
6 150 96
7 60 56
8 135 102
9 150 104
10 150 108
11 60 65
12 90 58
a. Given the nature of the problem, which would be the dependent variable and which would be the independent variable?
b. Plot the data
c. Determine the estimated regression lnc. Give an economic interpretation of the slope (b) coefficient
d. Test the hypothesis that there is no relationship between the variables. (i.e., B= 0)
e. Calculate the coefficient of determination
f. Perform an analysis of variance on the regression, including an F test on the overall significance of the results
g. Determine the best estimate, based on the regression model, of the amount of life insurance held by an executive whose annual income is $80,000. Construct an approximate 95 percent prediction interval.
182 problem 1
Suppose an appliance manufacturer is doing a regression analysis, using quarterly time-series data, of the factors affecting its sales of appliances. A regression equation was estimated between appliance sales in dollars as the dependent variable and disposable personal income and new housing starts as the independent variables. The statistical tests of the model showed large t-values for both independent variables, along with a high r2 value. However, analysis of the residuals indicated that substantial autocorrelation was present.
a. What are some of the possible causes of this autocorrelation?
b. How does this autocorrelation affect the conclusions concerning the significance of the individual explanatory variables and the overall explanatory power of the regression model?
c. Given that a person uses the model for forecasting future appliance sales, how does this autocorrelation affect the accuracy of these forecasts?
d. What techniques might be used to remove this autocorrelation from the model?
Suppose the appliance manufacturer discussed in Exercise 1 also developed another model, again using time-series data, where appliance sales was the dependent variable and disposable personal income and retail sales of durable goods were the independent variables. Although the r2 statistic is high, the manufacturer also suspects that serious multicollinearity exists between the two independent variables.
a. In what ways does the presence of this multicollinearity affect the results of the regression analysis?
b. Under what conditions might the presence of multicollinearity cause problems in the use of this regression equation in designing a marketing plan for appliance sales?
Observation Amount of Life Insurance Annual Income is assessed.
Financial Case Study
For the following assignment, I am tasked to analyze the company, Genworth Fin
ancial. I would like some assistance with understanding key elements of the assignment so that I can successfully write this lengthy paper. I have provided the website of the company which includes key financial data.
Please be as detailed as possible.
Here is the assignment:
Using the publicly traded company (Genworth Financial) identified and approved during Week One, submit one report with three 1,050-1,400-word sections regarding that company's long-term financing policies and capital structure (section 1), risk management policies (section 2), and an acquisition analysis for that same company (section 3). Please note the last requirement of the acquisition analysis and its association with the risk portion of the report.
Section 1: Report on the company's long-term financing policy & capital structure.
a. Identify the firm's most recent long-term financing decision (e.g., debt, IPO, seasoned equity offering, secondary offering). Analyze the economic, business, and competitive background in which the financing occurred, and identify cost and risk trade-offs.
b. Identify your firm's book value, market value, and levered value according to the M&M model. For a 20 percent increase in assets, perform a quantitative analysis and recommend the optimal capital structure mix for your company. Your analysis should include an estimation of that company's cost of capital, price per share, and market value of the firm.
c. Discuss what changes you think would occur to your finance policy and capital structure if your firm was forced to consider re-organization and bankruptcy strategies.
d. Assume that your firm will be investing in the global market. What international investment and financing opportunities would you consider - and why? Also, discuss foreign exchange risk and give an example that analyzes how foreign exchange rates could cause a loss to the firm.
Section 2: Use the following list of risk management tools and describe the circumstances under which they would be applied to the risk categories of corporate (including risk associated with acquisition analysis and capital budgeting), economic, foreign currency, political, and other relevant global business risks.
e. Black-Scholes options pricing model
f. Simulation analysis
h. Feel free to add other tools that you find that are relevant to your chosen company.
Section 3: This will be a report to the board of directors that identifies a synergistic acquisition candidate for your company.
i. This report should clearly identify the following:
1) Your proposed acquisition terms
4) Potential negotiation strategies
j. Supporting financial data should include the following:
1) Price/earnings ratios
2) Book value
3) Current market value
5) Diluted price per share
6) Capital Budgeting tools learned from FIN 544 (NPV, IRR, Profitablility index, payback - optional: Discounted Payback and Modified Internal Rate of Return)
k. Discuss the general risks inherent in an acquisition strategy.
l. Discuss the specific risks that should be included in the quantitative analysis. For example, what risk factors should be included in the discount rate (sometimes known as the hurdle rate, or required rate of return).
Note: Use MS Excel® spreadsheets as support showing your computations where applicable.View Full Posting Details