Question

Returns on common stocks in the United States and overseas appear to be growing more closely correlated as economies become more interdependent. Suppose that this regression line connects the total annual returns (in percent) on two indexes of stock prices. PREDICTED OVERSEAS RETURN = 4.4 + 0.64 U.S. RETURN (a)What is the estimated y-intercept in this line? What does this number say about the overseas returns when the US, market is flat (0% return This number means that when the US market is flat, the predicted overseas return will be 4.4% ● This number means that when the US market is flat, the predicted overseas return will be 2.816% i) This number means that when the US market is flat, the predicted overseas return will be 0.64% (b) What is the estimated slope in this line? What does this number say about the relationship between U.S, and overseas retums? () This number means that for every 1% increase in the US market, the predicted overseas return will increase 4.4% This number means that for every 1% increase in the US market, the predicted overseas return will increase 0.64% ● This number means that for every 10% increase in the US market, the predicted overseas return will increase 0.64% ● This number means that for every 1% increase in the US market, the predicted overseas return will increase 2.816%

Answer 1

(a)

The y-intercept is 4.4.

First option is correct.

(b)

The estimated slope is 0.64.

Second option is correct.