Answer the following questions based on the info below:

1.In this regression,Rt is the return on the stock and Rft is the risk-free rate for the same period. RMt is the return on a stock market index, such as the S&P 500 index. i is the regression intercept, and i is the slope (and the stock'sestimated beta).trepresents the residuals for the regression. The intercept,i, is often called Jensen's alpha. What does it measure? If an asset has a positive Jensen's alpha, where would it plot with respect to the SML?

2.Is the alpha of either ELY or the mutual fund significantly more or less than zero? (Hint:The alpha is the intercept.)

3.How do you interpret the beta for the stock and the mutual fund? (Hint:The beta is next to the coefficient.)

4.Which of the two regression estimates has the highest R-squared? Is thiswhat you would have expected? Use the scatterplot to explain why.

Scatterplot

ELY Regression Analysis:

SUMMARY OUTPUTRegression StatisticsMultiple R0.999807944R Square0.999615925Adjusted R Square0.999609187Standard Error0.000585613Observations59ANOVAdfSSMSFSignificance FRegression10.0508761950.050876195148351.69164.7645E-99Residual571.95478E-053.42943E-07Total580.050895742CoefficientsStandard Errort StatP-valueLower 95%Upper 95%Lower 95.0%Upper 95.0%Intercept0.001771877.99626E-0522.158735531.07663E-290.0016117480.0019319930.0016117480.001931993-0.0075557861.0019621390.002601388385.16449934.7645E-990.996752951.0071713280.996752951.007171328RESIDUAL OUTPUTObservationPredicted -0.00634033265878447Residuals1-0.061060230.00090668320.041362716-0.00024798630.014335715-0.00052516740.0214988710.00088250.025988781-0.0001120396-0.01814822-0.00051102470.0045239770.00116748380.0088205710.0002509990.052257165-0.000429479100.0127874250.000693877110.037763409-0.000363939120.019851377-0.000685117130.0225587220.00077724114-0.01328191-0.000137267150.051314302-0.00054228616-0.029620960.000600288170.031563067-0.000207381180.04636328-0.00048085190.0298346310.000543272200.025364196-7.86351E-0521-0.03389755-0.000736312220.0449317540.00073711230.008675889-0.000347978240.007968127-0.000637869250.0228183660.00059959260.020850898-0.00020904727-0.01335425-0.000466314280.0394760020.00045834929-0.01378076-0.000256234300.025002156-0.00062717310.0263201990.00058879632-0.00244999-0.00011249533-0.02934654-0.000669604340.0567553890.00065657935-0.01567507-0.000211327360.01029271-0.000777489370.0122754890.00056763838-0.01928938-4.01731E-05390.021527588-0.00059773940-0.060965140.00060443641-0.0247312-0.000203666420.084909463-0.000539244430.0022192820.00071929544-0.01593466-9.14467E-0545-0.04925504-0.00060973846-0.002581680.001011712470.067683727-4.62678E-05480.004317921-0.000595609490.0169344990.000772622500.002500886-8.38948E-05510.037234451-0.000638161520.0003331430.000858349530.000376353-0.0003808954-0.01789232-0.000581368550.0357629570.001008819560.019657658-0.000245776570.019273836-0.000753144580.0386422340.000632197590.00083083-0.000257201

Expert Answer