One of the theories regarding initial public offering (IPO) pricing is that the initial return y (the percentage change from offer to open price) on an IPO depends on the price revision x (the percentage change from pre-offer to offer price). Another factor that may influence the initial return is a high-tech dummy variable that equals 1 for high-tech firms and 0 otherwise. The following table shows a portion of the data on 264 IPO firms from January 2001 through September 2004.

Initial Return	Price Revision	High-Tech
41.72	0.88	0
12.63	32.87	0
3.84	20.35	1

a-1. Estimate y = _o + ₁x + ₂d + where the dummy variable d equals 1 for firms that are high-tech. (Round your answers to 2 decimal places.)

= + Price Revision + High-Tech

a-2. Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. (Round coefficient estimates to at least 4 decimal places and final answer to 2 decimal places.)

a-3. Find the corresponding predicted return of a firm that is not high-tech. (Round coefficient estimates to at least 4 decimal places and final answer to 2 decimal places.)

b-1. Estimate y = _o + ₁x + ₂d + where the dummy variable d equals 1 for firms that are not high-tech. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal place.)

= + Price Revision + High-Tech

b-2. Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. (Round coefficient estimates to at least 4 decimal places and final answer to 2 decimal places.)

b-3. Find the corresponding predicted return of a firm that is not high-tech. (Round coefficient estimates to at least 4 decimal places and final answer to 2 decimal places.)

c-1. In the high-tech models, determine if the dummy variable is significant at the 5% level.

multiple choice 1

• The dummy variable is significant since the p-value is less than 0.05.

• The dummy variable is not significant since the p-value is more than 0.05.

• The dummy variable is significant since the p-value is more than 0.05.

• The dummy variable is not significant since the p-value is less than 0.05.

c-2. In the not high-tech models, determine if the dummy variable is significant at the 5% level.

multiple choice 2

• The dummy variable is significant since the p-value is less than 0.05.

• The dummy variable is not significant since the p-value is more than 0.05.

• The dummy variable is significant since the p-value is more than 0.05.

• The dummy variable is not significant since the p-value is less than 0.05.