Question

Based on the regression results below, if the SP 500 return is 15%, what is the predicted (or fitted) rate of return for firm i? Regression summary output SUMMARY OUTPUT: 0.158614 0.101

Answer 1

The predicted rate of return for firm i when the SP 500 return is 15% is 12.479%.

Step-by-step explanation:

In order to predict the rate of return for firm i, we need to use the regression results. The regression summary output shows a regression coefficient of 0.158614 and an intercept of 0.101.

To find the predicted rate of return for firm i when the SP 500 return is 15%, we need to use the formula: predicted rate of return = intercept + regression coefficient * SP 500 return.

Substituting the values, predicted rate of return = 0.101 + 0.158614 * 15% = 0.101 + 0.158614 * 0.15 = 0.101 + 0.02379 = 0.12479.

Therefore, the predicted rate of return for firm i when the SP 500 return is 15% is 12.479%.