Silver Prices an Economist Is in the Process of Developing a Developing

question 136

Essay

Silver Prices
An economist is in the process of developing a model to predict the price of silver.She believes that the two most important variables are the price of a barrel of oil (x₁)and the interest rate (x₂).She proposes the first-order model with interaction: y = β₀ + β₁x₁ + β₂x₂ + β₃x₁x₃ + ε.A random sample of 20 daily observations was taken.The computer output is shown below. THE REGRESSION EQUATION IS y = 115.6 + 22.3x₁ + 14.7x₂− 1.36x₁x₂ S = 20.9 R−Sq = 55.4% ANALYSIS OF VARIANCE ​ ​
-{Silver Prices Narrative} Is there sufficient evidence at the 1% significance level to conclude that the interest rate and the price of silver are linearly related?

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Definitions:

Security Market Line

A graphical representation that shows the expected return of an asset at different levels of systematic, or market, risk.

Market Rate

The current interest rate available in the marketplace for securities or loans.

Risk-free Rate

A theoretical return on an investment with zero risk, typically represented by government bonds.

Portfolio Beta

A measurement of the volatility of a portfolio compared to the market as a whole.