1.

A small business hires a consultant to predic the value of weekly sales of their producto
if their weekly advertising is increased to $750 por week. The consultant takes a record
of how much the firm spent on advertising per week and the corresponding weekly sales
over the past six months. The consultant writes “OVer the past six months the average
weekly expenditure on adversiting hs been $500 and average weekly sales have been
$10.000. Base don the results of a simple linear regression, I predict sales Will be
$12.000 if $750 per week is spent on advertising”
a. What is the estimated simple regression used by the consultant to make this
prediction
Ventas= β1 + β 2 Adv
10000=β1 + β 2∗500
12000=β1 + β 2∗750
Resolver
10000= ^
β1 + ^
β 2∗500
12000= β + ^
^
1 β ∗750
2
Método de eliminación 2x2
^
β 1+ ^
β2∗500=10000
^
β +^β ∗750=12000 (−1)
1 2
_______________________

0−250 ^
β2 =−2000

^ −2000
β 2=
−250
^
β 2=8

^
β 1+ ( 8 ) 500=10000
^
β + 4000=10000
1
^
β 1=6000

b. Sketch a graph of the estimated regression line. Locate the average weekly values on
the graph
 2. You have the results of a simple linear regression base don state-level data and the
District of Colombia, a total of N= 51 observations.
a. The estimated error variance σ 2=2.04672. What is the sum of the squared least
squares residuals.

N=51
2
2 Σ εi
σ = =2,04672
N −2
2
Σ εi
=2.04672
49
2
Σ ε i =2.04672∗49
2
Σ ε i =100,28928

b. The estimated variance of b 2 is 0.00098. What is the standard error of b 2? What is

2
the value of Σ ( X i− X ) ?

σ2
Var ( ^
β 2 )=
Σ ( X i− X )2

2,04672
0,00098=
Σ ( X i −X )2

2 2,04672
Σ ( X i− X ) =
0,00098
2
Σ ( X i− X ) =2088,4898
 c. Suppose the dependent variable y i=¿ the state´s mean income (in thousands of
dollars) of males who are 18 years of age or older and X i the percentage of males 18
years or older who are high school graduates. If b 2=0 , 18, interpret this result.
Y i=β 1 +0 , 18 X i
Por cada hombre graduado del high school el ingreso promedio del Estado aumenta
en 180 dolares
d. Suppose X =69.139 and Y =15.187 , what is the estimate of the intercept
parameter?

3. The file br2.dat contains data on 1080 houses sold in Baton Rouge, Lousiana, during mid-
2005. The data include sales Price, the house size in square feet, its age, wherther it has
a pool or fireplace ori s on the waterfront. Also included is an indicador variable
TRADITIONAL indicating whether the house style is traditional or not. Variable
descriptions are in the file br2.def
a. Plot house Price against house size for houses with traditional style
b. Fort he traditional-style houses estimate the linear regression model PRICE = beta1 +
beta2SQFT + e. Interpret the estimates. Draw asketch of the fitted line.
c. Fort he traditional-Style houses estimate the quadratic regression model
PRICE=α 1 +α 2 SQFT + ε

Compute the marinal effect o fan additional square foot of living área in a home with 2000
square feet of living space. Compute the elasticity of PRICE with respect to SQFT for a home
with 2000 square feet of living space. GRaph the fitted line. On the graph, sketch the line
that is tangent to the curve for a 2000.square-foot house.
d. For the regressions in (b) and (c) compute the least squares residuals and plot them
against SQFT. Do any od our assumptions apear violated?
 e. One basis for choosing between these two specifications i show well the data are fiy by
the model. Compare the sum of squared residuals (SSE) from the models in (b) and (c).
Which model has a lower SSE? How does having a lower SSE indicate a “better-fitting#
model?
f. For the traditional-sytle houses estimate the log-linear regression model in
PRICE=γ 1 +γ 2 SQFT +ε
Interpret the estimates. GRaph the fitted line, and sketch the tangent line to the curve
for a house with 2000 square feet of living área.

4. The capital asset pricing model (CAPM) is an important model inthe feld of finance. It
explains variations in the field of finance. It explains variations in the rateo f return on a
security as a function of the rateo f return on a portfolio consisting of all publicly traded
stocks, which is a calles the maket portfolio. Generally the rateo f return on any
investment is measured relative to its opportunity cost, which is the return on a risk free
asset. The resulting difference is called the risk premium, since it is the reward or
punishment for making a risky investment. The CAPM says that the risk premium on
security J is proportional to the risk premium on the market portfolio. That is
r j−r f =β j ( r m−r f ) .

Where r j and r f are the return to security j and the risk-free rate, respectively, r m is the return
on the market portfolio, and β j is the j th security´s “beta” value. A stock´s beta es important to
investors since it reveals the stock´s volatility. It measures the sensitivity of security j´s return to
variation in the whole stock market. As such, values of beta less tan 1 indicate that the stocks is
“defensive” since its variation is

Les that the market´s. A beta greater tan 1 indicates an “aggressive stock”. Investours usually
want an estimate of a stock´s beta before purschasing it. The CAPM model “is obtained by
including an intercept in the model (even though theory says it should be zero) and an error
term,

r j−r f =α j + β j ( r m−r f ) + ε
a. Explain why the econometric model above is a simple regression model like those
discussed in this chapter.

( r j−r free )=β 1+ β 2 ( r m −r free )

 ( r j−r free ) ⟶ acción
( r m−r free ) ⟶ mercado
r m −r free =PRIC E M

r j−r free =PRIC E j

r j−r free =β 1+ β 2 (r m −r free )

PRIC E j=β 1+ β2 PRIC E M

b. In the data file capm4.dat are data on the montly returns of six firms (Microsoft, GE,
GM, IBM, Disney, and Mobel-exxon), the rateo f return on the market portfolio
(MKT), and the rateo f return on the risk free asset (RISKFREE). The 132 observatiosn
cover January 1998 to december 2008. Estimate the CAPM model for each firm, and
comment on their estimated beta values. Which firm appears most aggressive?
Which firm appears most defensive?

c. Finance theory says rthat the intercept parameter α j should be zero. Does this seem
correct given your estimates? Fort he Microsoft stock, plot the fitted regression line
along with the data scatter.

d. Estimate the model for each firm under the assumption that α j =0. Do the estimates
of the beta values change much?

##punto 4

library(readxl)

capm4 <- read_excel("C:/Users/User/Downloads/capm4.x

head(capm4)

attach(capm4)