Dividends. A random sample of 42 firms was chosen from the S&P 500 firms listed in the Spring 2003 Special Issue of Business Week (The Business Week Fifty Best Performers). The indicated dividend yield (DIVYIELD), the earnings per share (EPS), and the stock price (PRICE) were recorded for these 42 firms. These data are available on the CD in a file named DIV4. Run a regression using DIVYIELD as the dependent variable and EPS and PRICE as the independent variables. Use the output to answer the following questions:
a. What is the sample regression equation relating DIVYIELD to PRICE and EPS?
b. What percentage of the variation of DIVYIELD has been explained by the regression?
c. Test the overall fit of the regression. Use a 10% level of significance. State the hypotheses to be tested, the decision rule, the test statistic, and your decision.
d. What conclusion can be drawn from the test result?
e. Is it necessary to test each coefficient individually to see if either PRICE or EPS is related to DIVYTELD? Why or why not?
(Source: Copyright 2003, Business Week. Visit us at our Web site at www.businessweek.com for additional information.)
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