(Solved): [Aa inage of Regresson dialogue bos] 4. Your regression analysis will open in a new workshoet. Pena ...

[Aa inage of Regresson dialogue bos] 4. Your regression analysis will open in a new workshoet. Pename the workshoet based on the premium being compared to the ssP premium, for vxample: "ELY Regression Anaysis." B. Answer the following questions: 1. In this rogression, \( R_{1} \) is the roturn on the stock, and \( R_{i} \) is the risk-line raso for the same period. Aur is the roturn on a stock market index, such as the SSP 500 index, \( \alpha \) is the regression intercept, and \( \beta \) is the slope (and the atock's essimatod beta). p repeesents the rosiduals for the regression. The intercept, \( a_{b} \) is often called Jersen's alpha. What does it measure? If an asset has a peeitive Jensen's alpha, where would a plot with respect to the SML? \[ R_{1}-R_{m}=\alpha_{i}+B_{i} l A_{i e}-R_{d i}+\phi_{T} \] 2. is the alpha of either ELY of the mutual fund significarely more or less than zero? fout. The alpha ia tre intercept.) 3. How do you interprot the beta for the stock and the mutual fund? Hint: The bela is next to the coetlicient) 4. Which of the two regression estimatos has the highest A-scuarod? is this what you would have expected? Usa the scaterplot to explain why. \[ E\left(A_{j}\right)=R_{p}+B E\left(R_{u d}-R_{d}\right. \] Since CAPM is an equason, you can suteract the risk free tate from beth sides, which gives you: \[ E\left(A_{j}-R_{\gamma}=R_{R} A_{s d}-R_{d}\right. \] This equation is datorministio-that is, exact. In a regrossion, youll roalize shat thoro's some indoterainato onror. You need to fomaly recogrize this in the oquation by adding opalion, which ropresents this emor: \[ E R_{j}-P_{j}=\beta \mid E\left(A_{1} d-A_{d}+\mathrm{C}\right. \] Finaly, think of the above equason in a cogression. Since there's no intercept in the equation, the intercopt is zoro. Howevor, when you essmate the rogression equation, you can add an intorcopt term, which is called alpha hore: \[ E\left(A_{i}\right)-R_{i}=\alpha_{i}+\beta_{i} E\left(A_{u}\right)-A_{d}+c \] The intorcept torm is known as Jeneen's apha, and zepresents the "oxcess" rotum. If CAFM helds exacty, tris interept should be zoro. Thinh of croate a scatter plot and then pertorm a rigression aralysis for ElY stock and the mutaal fund. Then, ute thope resits to compare and analyze twe results. A. Scamor Plotting and Alogression Analysis Uso the following steps to create the scatter plot: 1. Go to the Part 4 Stock Data tab in your Ercol spreadsheot. Highight column K-M heodingt, then hold down theCtil button and seioct cels \( K \). 3 tirough M 62 . 2. Go to the Insert tab, elick on Scatter Chart, and seleci ewe trst ofyle.