Ken is a junior stock analyst for an investment firm. He believes that stock returns are highly determined by the value, leverage and profitability of a company. With that, he decides to conduct a cross-sectional regression on the following variables. R = stock returns for stock i BM = book-to-market ratio for stock i DE: = debt-to-equity ratio for stock i ROE = return on equity for stock i The table below shows the output extract of the multiple linear regression for a cross- section of 20 randomly selected stocks on the local stock exchange. ANOVA df SS Regression 0.1778 Residual 0.0180 Total 19 0.1958 3 16 Intercept BM DE ROE Coefficients 0.2822 -0.0931 -0.0559 0.2271 Standard Error 0.0432 0.0256 0.0156 0.1148 Required: (a) Based on Ken's regression output, construct the multiple regression equation using the notations given. (4 marks) (b) What is the expected stock return for a company with a book-to-market ratio of 0.9, debt-to-equity ratio of 0.8 and a return on equity of 0.1? (4 marks) (c) Explain how each of the independent variables is related to stock returns. (3 marks) (d) Calculate the coefficient of determination and interpret this figure. (4 marks) (e) Calculate the standard error of the estimate. (3 marks) (f) Determine the 95% nfidence interval for the coefficient of the debt-to-equity ratio. (6 marks)