16 5.75 points A research analyst is trying to determine whether a firm's price-earnings (PE) and price-sales (PS) ratios can explain the firm's stock performance over the past year. A PE ratio is calculated as a firm's share price compared to the income or profit earned by the firm per share. Generally, a high PE ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower PE ratio. The PS ratio is calculated by dividing a firm's share price by the firm's revenue per share for the trailing 12 months. In short, investors can use the PS ratio to determine how much they are paying for a dollar of the firm's sales rather than a dollar of its earnings (PE ratio). In general, the lower the PS ratio, the more attractive the investment. The accompanying table shows a portion of the year-to-date returns (Return in %) and the PE and PS ratios for 30 firms. Skipped 1 2 Firm Return 4.2 -4.7 PE 14.36 2.40 11.03 0.81 PS 30 16.4 13.94 1.94 eBook Print Click here for the Excel Data File a-1. Estimate: Return = 60 + 6PE + 62PS + E. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) References Predicted Return = + PE + PS a-2. Are the signs on the coefficients as expected? Yes No b. Interpret the slope coefficient of the PS ratio. As the PS ratio increases by 1 unit, the predicted return of the firm decreases by 4.39%, holding PE constant. As the PS ratio increases by 1 unit, the predicted return of the firm increases by 3.37%, holding PE constant. As the PS ratio increases by 1 unit, the predicted return of the firm decreases by 3.37%, holding PE constant. O As the PS ratio decreases by 1 unit, the predicted return of the firm decreases by 5.37%, holding PE constant. c. What is the predicted return for a firm with a PE ratio of 10 and a PS ratio of 2? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round final answer to 2 decimal places.) Predicted Return d. What is the standard error of the estimate? (Round your answer to 2 decimal places.) Standard error e. Interpret R. 40.40% of the sample variation in y is explained by the sample regression equation. 40.40% of the sample variation in x is explained by the sample regression equation. 63.56% of the sample variation in x is explained by the sample regression equation. O 35.98% of the sample variation in y is explained by the sample regression equation. Firm Return PE PS 1 4.2 14.36 2.4 2 -4.7 11.03 0.81 3 5.9 11.98 2.23 4 5.2 11.31 1.38 5 |-11.4 9.84 1.81 6 20.8 15.64 0.8 7 64.7 16.08 1.64 8 18.9 9.01 0.99 9 -15.1 11.38 2.79 10 48.2 13.75 1.44 11 7.3 11.49 1.19 12 20.8 14.32 1.28 13 -18.3 8.21 0.84 14 3 9.52 2.71 15 12.4 11.21 1.97 16 -3.8 12.63 2.73 17 1.6 9.72 2 18 15.8 13.43 1.15 19 23.1 14.99 3.35 20 -1 8.93 2.41 21 -8 10.51 3.69 22 -3.7 7.93 2.24 23 15.6 16.41 4.62 24 21.5 16.33 0.9 25 6.5 15.05 2.35 26 11.9 9.15 0.98 27 13.8 14.93 1.4 28 15.7 15.57 0.9 29 1.2 12.61 0.49 30 16.4 13.94 1.94