A research analyst is trying to determine whether a firms price earnings (PE) and price sales (PS) ratios can explain the firms stock performance over the past year A PE ratio is calculated as a firms 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 firms share price by the firms 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 firms 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 Firm Return PE PS 1 4 2 14 36 2 41 2 4 1 11 03 0 80 30 16 7 13 96 1 95 Click here for the Excel Data File a 1 Estimate Return 0 1 PE 2 PS (Negative values should be indicated by a minus sign Round your answers to 2 decimal places ) a 2 Are the signs on the coefficients as expected multiple choice 1 Yes No b Interpret the slope coefficient of the PS ratio multiple choice 2 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 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 ) d What is the standard error of the estimate (Round your answer to 2 decimal places ) e Interpret R 2 multiple choice 3 40 53 of the sample variation in y is explained by the sample regression equation 40 53 of the sample variation in x is explained by the sample regression equation 63 67 of the sample variation in x is explained by the sample regression equation 36 13 of the sample variation in y is explained by the sample regression equation

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A research analyst is trying to determine whether a firms price-earnings (PE) and price-sales (PS) ratios can explain the firms stock performance over the past

A research analyst is trying to determine whether a firms price-earnings (PE) and price-sales (PS) ratios can explain the firms stock performance over the past year. A PE ratio is calculated as a firms 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 firms share price by the firms 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 firms 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.

Firm	Return	PE	PS
1	4.2	14.36	2.41
2	4.1	11.03	0.80

30	16.7	13.96	1.95

Click here for the Excel Data File a-1. Estimate: Return = ₀ + ₁PE + ₂PS + . (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

a-2. Are the signs on the coefficients as expected? multiple choice 1

b. Interpret the slope coefficient of the PS ratio. multiple choice 2

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.
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.)

d. What is the standard error of the estimate? (Round your answer to 2 decimal places.)

e. Interpret R². multiple choice 3

40.53% of the sample variation in y is explained by the sample regression equation.
40.53% of the sample variation in x is explained by the sample regression equation.
63.67% of the sample variation in x is explained by the sample regression equation.
36.13% of the sample variation in y is explained by the sample regression equation.