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The following table contains yearly data on stock price (SP) and return on equity (ROE) from 2016 to 2019: Year SP ROE 2016 3 2
The following table contains yearly data on stock price (SP) and return on equity (ROE) from 2016 to 2019: Year SP ROE 2016 3 2 2017 3 4 2018 5 5 2019 9 13 Where: SP: stock price ($/share); ROE: return on equity (%). Consider the following simple linear regression: SP = B. +B, ROE. 1. Use Ordinary Least Squares Method to estimate B, andB, ; 2. Interpret the slope; 3. Find the prediction line; 4. Compute the coefficient of determination; that is, R?; 5. What would be the effect of a 5 % increase in return on equity on stock price? 6. What would be the effect of a 3 % decrease in return on equity on stock price
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