Provide clear solutions to the following.
tively wrote what you meant to write. I. (1 1pts) You are given the following estimated equation: log(price) = 4.83 + 0.000347sqrft + 0.0117barms - 0.056colonial + 0.000068srft . colonial Sid. Errors (0.013) (0.000061) (0.0310) (0.015) (0.000074) n = 88, R-Squared =0.6056 Where the variables are described as follows: price = the house price, in $1000 sqrfi = the size of the house, in squared feet bdrms = the number of bedrooms in the house colonial = 1 if the house has a colonial architectural style, and 0 otherwise. sqrft *colonial = interaction variable a. Provide an appropriate interpretation for the coefficient estimate of the variables 'sqrfi', 'colonial", and 'sqrfi * colonial" repectively. (3pts) b. What is wrong with the statement: "holding everything else constant, the estimated increase in the house price is 0.117% for an additional bedroom"? (1 pt) c. Are the partial slope coefficients individually significant at 5%? (4pts) d. Are the partial slope coefficients jointly significant at 5%? (1pt) e. Calculate the estimated effect of three additional bedrooms of 150 sqrft each, on the price of: i) a colonial house; ii) a non-colonial house (2pts) II. (11 pts) You are given the following economic model: In(ahe) = , + Bedu + Bage + B, female + B.edu. female + B,age. female + Bage* With all the variables described as follows: In(ahe) = natural log of average hourly earnings; age = worker's age; female is a dummy variable equal to 1 if the worker is a female, and 0 if male; age female is an interaction variable equal to age *female; edu - the worker's number of years of education; edu.female is an interaction variable equal to edu *female; age - age*age. From the model above, answer the following questions: a. What is the return to education for a female worker? For a male worker? (2pts) b. What is the effect of getting one year older on the hourly wage of a female worker? On the hourly wage of a male worker? (2pts)Company X has zero-coupon debt outstanding with a face value of F > 0 due in exactly one year. This debt does not contain any covenants. The value of the company's assets when the debt comes due will either be 0, 90, or 180 with probabilities 0.2, 0.6, and 0.2, respectively. The current market (and also fair) value of the company's equity is 16. There are no taxes or direct costs of financial distress, all investors are risk neutral, and the risk-free interest rate is zero. The managers of the firm always act in the interests of existing shareholders. When answering each question, state any additional assumptions you may need to make. Show all working/calculations. (a) Determine F, the face value (i.e. promised payment) of the company's debt. [3 marks] Suppose X's managers can choose to costlessly restructure the company's assets so that they will be worth 0 or 180 next year with probabilities 0.7 and 0.3, respectively. (b) Assuming the firm retains its existing assets, graph the expected payoff to X's sharehold- ers as a function of F, i.e. for all feasible face values of debt, 0 S F
