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EC4215 Formative Assessment 2

The document provides information about a formative assessment related to the CAPM model. It includes STATA output for regressions of Microsoft and Exxon-Mobil risk premiums on the market risk premium. Students are asked to interpret the goodness of fit and confidence intervals for the slope coefficients and explain the results to an investor.

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27 views2 pages

EC4215 Formative Assessment 2

The document provides information about a formative assessment related to the CAPM model. It includes STATA output for regressions of Microsoft and Exxon-Mobil risk premiums on the market risk premium. Students are asked to interpret the goodness of fit and confidence intervals for the slope coefficients and explain the results to an investor.

Uploaded by

israel adesanya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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EC4215 Autumn 2021

Formative Assessment 2
This formative assessment relates to the CAPM model – refer to Handout 1 for information on
the CAPM.

Using the attached STATA output for the CAPM model for Microsoft and Exxon-Mobil, you
should answer the following questions. You can handwrite or type your answers on the
formative assessment submission page (available in the Formative Assessments folder) and
submit your answers to Canvas (via the Assignments button) by 5pm on Monday,
September 27th 2021.

Please ensure that you retain a copy of your answers for discussion in the live real-time
interaction session that will take place on Wednesday, 5pm, September 29th 2021.

(a) Microsoft: comment on the goodness of fit of the model


(b) Exxon-Mobil: compute and interpret the coefficient of determination
(c) Construct and interpret a 99% confidence interval for the slope coefficient of the Microsoft
regression. Assume that you are a stockbroker. Explain this result to an investor who has
come to you for advice.
(d) Construct and interpret a 95% confidence interval for the slope coefficient of the Exxon-
Mobil regression.
EC4215 Autumn 2021

CAPM: Microsoft regression

. regress Microriskprem Marketriskprem

Source SS df MS Number of obs = 132


F(1, 130) = 67.29
Model .533017867 1 .533017867 Prob > F = 0.0000
Residual 1.0297917 130 .007921475 R-squared = 0.3411
Adj R-squared = 0.3360
Total 1.56280957 131 .011929844 Root MSE = .089

Microriskprem Coef. Std. Err. t P>|t| [95% Conf. Interval]

Marketriskp~m 1.318947 .1607901 8.20 0.000 1.000843 1.637051


_cons .0060975 .0077467 0.79 0.433 -.0092285 .0214235

CAPM: Exxon-Mobil regression (note: some STATA output has been


intentionally omitted)

. regress Exomriskprem Marketriskprem

Source | SS df MS Number of obs = 132


-------------+----------------------------- F(1, 130) = 21.29
Model | .052507669 1 .052507669 Prob > F = 0.000
Residual | .320585389 130 .002466041 R-squared =
-------------+----------------------------- Adj R-squared =
Total | .373093058 131 .002848039 Root MSE = .04966

--------------------------------------------------------------------
Exomriskprem | Coef. Std. Err. t P>|t| [95% Conf. Interval]
--------------+-----------------------------------------------------
Marketriskp~m | .413969 .0897132
_cons | .0078801 .0043223
--------------------------------------------------------------------

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