Chapter 2 Econometric Problems

ECONOMETRIC ASSIGNMENT 3

HOMEWORK PROBLEM FROM TEXTBOOK

NO 2.10, 2.12, 2.14, 2.15

BY:

Irene

Rashmi

Ricky

Michael

Management

Business school

Pelita Harapan University

Tangerang

2014

2.10

a) because it follows the model y = β1 + β2X + e, where y is rj – rf, x is rm – rf, β1 is αj, β2 is βj.

| Disney | General Electric | General Motor | IBM | Microsoft | Exxon |

Covar | 0.002093 | 0.002109 | 0.002962 | 0.002776 | 0.003082 | 0.000969 |

Beta | 0.890495 | 0.89732 | 1.260064 | 1.18107 | 1.311285 | 0.412372 |

b)

the most aggressive is Microsoft because its beta (β2) is higher that the other firm.

c)

| Disney | General Electric | General Motor | IBM | Microsoft | Exxon |

Covar | 0.002093 | 0.002109 | 0.002962 | 0.002776 | 0.003082 | 0.000969 |

Beta | 0.899495 | 0.89782 | 1.280064 | 1.18107 | 1.317285 | 0.412372 |

d)

the beta didn’t change much compare before.

2.12 a)

b)

Regression model is SPRICE = β1 + β2LIVEAREA + e, the equation is SPRICE = -30069 + 9182*LIVEAREA + e

It means that for every 100 square foot of the live area will increase the selling price by 9182, and when there are zero square feet of live area, the selling price will be - $30,069.

c) the quadratic equation is SPRICE = 57728 + 212.611*LIVEAREA2 + e

the marginal effect is Slope d (sprice)d Livearea = 2*212.611*LIVEAREA = 2*212.611*15 = 6378.33

it means that 100 square feet added to a house of 1500 square feet will increase the price by $6378.

d)

e) Large lot : SPRICE = 113279 + 193.83*LIVEAREA2

not Large lot : SPRICE = 62172 + 186.86*LIVEAREA2

f) SPRICE = 13747 – 672.16*AGE

It means that the selling price will increase $627 as each additional year of age. If a house with zero age, it would cost $137,4.

The graph above showed the diagram of ln(SPRICE) and age, the equation is ln(SPRICE) = 11.746 – 0.00476*AGE. It means that extra age will decrease the selling price by 0.476%. if we set age is equal to zero,...