A Regression Was Performed on a Sample of 16 Observations

question 31

Essay

A regression was performed on a sample of 16 observations. The estimated equation is = 23.5 - 14.28x₁ + 6.72x₂ + 15.68x₃. The standard errors for the coefficients are S_b1 = 4.2, S_b2 = 5.6, and S_b3 = 2.8. For this model, SST = 3809.6 and SSR = 3285.4.
a.Compute the appropriate t ratios.
b.Test for the significance of ₁, ₂, and ₃ at the 5% level of significance.
c.Do you think that any of the variables should be dropped from the model? Explain.
d.Compute R² and R_a². Interpret R².
e.Test the significance of the relationship among the variables at the 5% level of significance.

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Definitions:

Compounded Annually

Interest calculated once per year, where the interest of one period is added to the principal for calculation of the next period's interest.

Constant Growth Annuity

An investment or financial product that provides a series of payments that grow at a constant rate for a specific period of time.

Loan

Money borrowed that is expected to be repaid with interest.

Compounded Annually

Interest calculation method where the interest is added to the principal sum once a year, so each year’s interest earnings are based on the principal plus the accumulated interest.