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Regression Equation and Statistical Analysis of Stock Return

The returns from an electronic firm's stock and the corresponding returns for the market portfolio for the past 15 years are given below. (See attached file for better table representation)

Market Return (%) Stock's Return (%)
16.02 21.05
12.17 17.25
11.48 13.1
17.62 18.23
20.01 21.52
14 13.26
13.22 15.84
17.79 22.18
15.46 16.26
8.09 5.64
11 10.55
18.52 17.86
14.05 12.75
8.79 9.13
11.6 13.87

1. Carry out the regression and find the B for the stock. What is the regression equation.
2. Does the value of the slope indicate that the stock is above-average risks?
3. Give a 95% confidence interval for this B. Can we say the risk is above the average 95% confidence?
4. If the market portfolio return for the current year is 10%, what is the stock's return predicted by the regression equation? Give a 95% confidence interval for this prediction.
5. Construct a residual plot. Do the residuals appear random?
6. Construct a normal probability plot. Do the residuals appear to be normally distributed?


Solution Summary

This in-depth solution calculates the beta of the stock to find the regression equation, determines the risk at 95% confidence level, predicts the stock return, and constructs a residual and normal probability plot. Explanations are provided at each step.