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Regression : Interpretation of Intercept and Slope of Regression Line

6) The following regression line shows how the monthly return for the mutual fund TWCUX (Twentieth Century Ultra Fund) is mathematically related to the S&P500 monthly return.

TWCUX = -2.61 + 1.27 (S&P500)

Explain what both the intercept and slope of the regression line tell you in the context of this problem. Calculate what the estimated monthly return for TWCUX would be if the monthly return for the S&P 500 were 15%.

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Solution Preview

According to the equation stated, the intercept of the regression line is -2.61 and the slope is 1.27. The intercept, in this case, shows how much would the monthly return for TWCUX be if the monthly return of S&P500 were equal to zero (so here, if the monthly return for S&P500 is zero, we can expect the return for TWCUX to be -2.61%). All other things held equal, a smaller ...

Solution Summary

The interpretation of intercept and slope of a regression line is investigated. The solution is detailed and well presented.