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A financial analyst investigating the determinants of return on common stocks in the US fits the following model: where; . RR: real rate of return on common stocks, . Growth: output growth, . Inflation: inflation rate. . All variables are in percent form for the period 1954-1981. . The relevant STATA output is presented below. Use the STATA output to answer the following questions. Questions: 1. Report the least squares estimates of the coefficients and corresponding p-values. (2 marks) 2. Are the signs of these estimates consistent with economic theory? Explain your answer. (3 marks). 3. Determine whether the estimated coefficients are statistically significant at the 5% level of significance. (1 mark) 4. Is the overall significance of the model at the 5% level of significance? (1 mark) 5. Based on part d above, will stimulating output growth or controlling for inflation have an impact on the rate of return? Explain your answer. (2 marks) 6. How much of the variation in the real rate of return (on common stocks) does this model explain? (1 mark)Variable Obs Mean Std. Dev. Min Max RR 28 5. 875 20.89837 -37.3 53 Growth 28 3.217857 2.569054 -1.9 6.7 Inflation 28 4.139286 3. 070811 -.4 10.8 Source SS df MS Number of obs = 28 F (2, 25) 16.73 Model 6749. 45065 2 3374.72533 Prob > F 0. 0000 Residual 5042. 58185 25 201.703274 R-squared 0. 5724 Adj R-squared 0. 5382 Total 11792. 0325 27 436.741944 Root MSE 14.202 RR Coef. Std. Err. t PoltI [95% Conf. Interval] Growth 3.943315 1. 293445 3.05 0.005 1. 279416 6. 607214 Inflation -2.499426 1. 082101 -2.31 0.029 -4.728055 -. 2707959 cons 3.531812 8. 111369 0 . 44 0.667 -13.17387 20.23749The objective of theses chapters loans, calculating returns, measuring credit risks by using default Model and Altman's Discriminant Model, and Option Models (chapter 10). Due date Assignments: 502 Part Two Measuring Risk a. What up-front fees does the bank earn on each the loan commitments are at the expected per of these? centage and the customers holding the letter b. What other income does the bank earn on these of credit do not default on their obligations off-balance-sheet activities? c. Calculate the returns on each of the off-balance- sheet activities assuming that the takedowns on Appendix 16A: A Letter of Credit Transaction View Appendix 16A at the website for this textbook (www.mhhe.com/saundde a asis ecent date. Under "Bookmarks," click on" This will bring the file onto your computer that contains the relevant data. any ees Table 16-5? What is the dollar value increase in these values over those reported in th- Integrated Mini Case cts CALCULATING INCOME ON OFF-BALANCE-SHEET ACTIVITIES Dudley National has issued the following off- balance-sheet items: not require a compensating balance on this loan. The customer is expected to draw down . A one-year loan commitment of $1 million with 90 percent of the commitment at the beginning an up-front fee of 40 basis points. The back-end of the year. fee on the unused portion of the commitment . A three-month commercial letter of credit on is 55 basis points. The bank's base rate on loans behalf of one of its AA-rated customers who is 8 percent, and loans to this customer carry a is planning to import $400,000 worth of goods risk premium of 2 percent. The bank requires from the Germany. The bank charges an up- a compensating balance on this loan of 10 per- front fee of 75 basis points on commercial let- cent to be placed in demand deposits and must ters of credit to AA-rated customers. maintain reserve requirements on demand . A standby letter of credit to one its A-rated deposits of 8 percent. The customer is expected customers who is planning to issue $5 million to draw down 75 percent of the commitment at of 270-day commercial paper for an effective com/saunders8e the beginning of the year. yield of 5 percent. The corporation expects . A one-year loan commitment of $500,000 with to save 50 basis points on the interest rate by an up-front fee of 25 basis points. The back-end using the SLC. The bank charges an up-front fee on the unused portion of the commitment fee of 40 basis points on SLCs to A-rated is 30 basis points. Loans to this customer carry customers to back the commercial paper a risk premium of 2.5 percent. The bank will issue