# Kindly solve the question in the attachment. This question is complete. 1. (15 points) For the exercises below, transform the regression equation Yi = 60 +81Xli +$2X2i +pi so that

Kindly solve the question in the attachment. This question is complete. 1. (15 points) For the exercises below, transform the regression equation Yi = 60 +81Xli +$2X2i +pi so that

you can use a t-statistic to test for the following restrictions. Show all your steps for full credit.

a. (5 points) B1 = 1262

b. (5 points) B1 – 82 = 2

a) If we assume normality of u, then we know the exact distribution of B1, a t student

b) If we do not assume normality of u but n is large, then we approximate the sampling distribution

3

2. (15 points) Consider the following model to explain CEO salaries in terms of various factors: salary = 30 +

Blsales + $2mktval + 83ceoten + u, where:

salary = 1990 compensation, $1000s; sales = 1990 firm sales, millions; mktval = market value, end 1990,

mills; ceoten = years as ceo with company

Next you perform the following regression: *

R2 = 0.2013, SER = 529.67

a) (5 pts) does each estimated coefficient on the individual variables (and constant term) mean

quantitatively (do not worry about standard errors, as they are not given, or the measures of fit)?

b) (5 pts) is the forecasted salary of a CEO working in a firm with sales equal to 5,000 millions,

market value equal to 10,000 millions, and 10 years of tenure?

c) (5 pts) Eliminating the variable sales from your regression, the estimation regression becomes:"

salary = 613.436 + .019sales + .023mktval + 12.703ceoten + u

salary = 641.059 + .0369mktval + 11.525ceoten + u

R2 = 0.184, SER = 533.58

Why do you think that the effect of mktval has changed now over part b. (very briefly describe)? (3) You and a classmate are assigned a project on which you will receive one combined grade.

You each want to receive a good grade, but you also want to avoid hard work. In particular,

here is the situation:

If you both work hard, you get an A, which gives you each 40 units of happiness

.If only one of you works hard, you both get a B, which gives you each 30 units of

happiness.

.If neither of you works hard, you both get a D, which gives each of you 10 units of

happiness.

. Working hard costs 25 units of happiness.

(a) Fill in the following payoff matrix:

Your decision

Work

Shirk

Classmate’s Work

decision

Shirk

(b) is the likely outcome? Explain your answer.

T

(c) If you get this classmate as your partner on a series of projects throughout the year, rather

than only once, how might that change the outcome you predicted in part (b)? On April 24, 232D, obtained the following information on bonds of ]hh Limited: Par value = 51,000, coupon

rate 535%, maturity date = January 1, 2025, interest payment dates = January lr July 1. A Determine the number of days in accrued for this bond.

B Determine the acaned interest on the bond [use 3035:] convention} C Given that the market yield on the bond on April 24, 2512!] was 4.50%, determine full {dirty} price and

clean price forAElC bond on this date. D price will the bond trade at in the market? Explain E Suppose on April 24. EDZD, you purchased this bond in the market and held this bond for exactly

one year {till April 24. 2011.]. The yield on this bond on April 24, 2011. was 115% and you decided to sell

the bond. Assume you face 32% marginal tax rate and that 50% of capital gains are taxable. Assume also that coupon interest payments can be reinvested at the annual yield of 3%.

1Determine your gross income and gross return from your investment.

2 Determine your net income and net return from your investment 3 Decompose your net income into its components and comment on your results as a portfolio

manager. vi payments accounts, still PLEsuit

IsOnly foreign currency traded with the Canadian dollar.

7.

For each of the following situations, outline the effect on the price of the Canadian

dollar in terms of US dollars and draw a demand and supply graph that illustrates the

changes that occur in the foreign exchange market for the Canadian dollar.

. A contractionary monetary policy initiated by the Bank of Canada raises

Canadian interest rates.

b. Canada’s real output rises at a time when real output in the United States is falling.

c. Americans (but not Canadians) find Canada a more attractive place to make

financial investments.

d. Given Canada’s aging population, more Canadian "snowbirds" travel to the

United States each winter.

e. Due to a credit crisis that affects US financial institutions more than it does

Canadian ones, Canada’s attractiveness as a destination for direct and portfolio

investment increases.

f. The Bank of Canada initiates an expansionary monetary policy that reduces

Canadian interest rates.

## Leave a Reply

Want to join the discussion?Feel free to contribute!