mock test question

saichitale1994
Good Student
Posts: 12
Joined: Mon Jun 15, 2015 3:48 am

mock test question

Postby saichitale1994 » Tue Sep 01, 2015 7:20 am

You regress the returns of a global industrial company's stock against the returns for the MSCI EAFE index and determine the following information:
Rstock = 0.04 + 1.2X + e ;
scompany stock =6.6%,
sTMSCI EAFE = 4.8%,
covariance of returns = 0.002765.
The coefficient of determination for the regression equation is closest to:
Choose one answer.
a. 0.873
b. 1.200
c. 0.762
d. 0.040

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: mock test question

Postby edupristine » Wed Sep 02, 2015 9:31 am

R^2= Coefficient of determination
R = Covariance /Standard deviation of x * Standard deviation of y
R = 0.002765/(0.048) * (0.066)
R = 0.872790404
R^2 = (0.872790404)^2
R^2 = 0.761763089
R^2 = 0.762


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