Questions: Temesgen - Worku@aau - Edu.et

Assignment
Instruction on Submission
1. The assignment must be submitted via email within two days after the final exam
before 10:00 pm
2. The recipient email is: temesgen.worku@aau.edu.et
3. The submission must have cover page which contains full name, ID No. and Section
4. The softcopy must be in PDF format
5. In the submission email, the subject is “Your Name-Section” and the file name
should also be “Your Name”
Questions
1. What is the difference between regression and correlation?
2. What is ordinary least square?
3. What is the role of the error term ui in regression analysis?
4. What is the difference between the error term and the residual?
5. What are the assumptions of ordinary least square? Explain them?
6. Explain the nature, cause, and consequence of heteroscedasticity?
7. Explain the nature, cause, and consequence of multicollinearity?
8. The file MGT (see the other file in the assignment folder) contains data on chief executive
officers and can be used to examine the effects of firm performance on chief executive
officer salary. Use this STATA file to answer the following questions.
i. Estimate a model relating annual salary to firm sales, profits, and market value.
ii. Interpret each coefficient? Which variables are statistically significant and at what level?
iii. Would you say that these firm performance variables explain most of the variation in
CEO salaries? Why do you say that?
iv. Add the variable ceoten to the model in part (i). What is the estimated percentage return
for another year of CEO tenure, holding other factors fixed?
v. Create natural logarithmic forms of salary, sales, and market value variables. Why can
profit not be included in logarithmic form?
Page 1 of 3
vi. Estimate a model relating annual salary (in log form) to firm sales (in log form), profits,
and market value (log form). How do you interpret the coefficient of log (firm sales)?
Which variables are statistically significant and at what level?
vii. Estimate a model relating annual salary to firm sales (in log form), profits, and market
value (log form). How do you interpret the coefficient of log (firm sales)?
viii. Estimate a model relating annual salary (in log form) to firm sales, profits, and market
value (log form). How do you interpret the coefficient of firm sales?
ix. Suppose you develop the following quadratic model:
salary = 0+1sales+2age+3age2 +u
a) What is the effect of age on annual salary?
b) What is the turning point? What does it mean?
9. Use the data in NBASAL (the file we used in the class for STATA) for this STATA exercise.
i) Estimate a linear regression model relating points per game (dependent variable) to
experience in the league and playing position (guard, forward, or center). In the model
include experience in quadratic form and use centers as the base group. Report the
results in the usual form.
ii) Why do you not include all three position dummy variables in part (i)?
iii) Holding experience fixed, does a guard score more than a center? How much more? Is
the difference statistically significant?
iv) Now, add marital status to the equation. Holding position and experience fixed, are
married players more productive (based on points per game)?
v) Add interactions of marital status with both experience variables. In this expanded
model, is there strong evidence that marital status affects points per game?
vi) Estimate the model from part (iv) but use assists per game as the dependent variable.
Are there any notable differences from part (iv)? Discuss.
Page 2 of 3
10. You want to examine the determinants of house price in Addis Ababa. You collect data and
get the following equation.
price = -19.315 + .128 sqrmeter + 15.198 bdrms
n =540, R2 =0.36
where price is the house price measured in thousands of birrs, sqrmeter is the square meter of
the house, and bdrms number of bed rooms.
a) How do you interpret the intercept?
b) How do you interpret the R2?
c) What is the estimated increase in price for a house with one more bedroom, holding
square meter constant?
d) What is the estimated increase in price for a house with an additional bedroom that is
140 square meter in size?
e) The first house in the sample has sqrmeter = 2,438 and bdrms = 4.
i) Find the predicted selling price for this house from the OLS regression line.
ii) The actual selling price of the first house in the sample was Birr 300,000 (so
price=300). What is the residual for this house?
Page 3 of 3

Questions: Temesgen - Worku@aau - Edu.et

Uploaded by

Copyright:

Available Formats

Questions: Temesgen - Worku@aau - Edu.et

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Questions: Temesgen - Worku@aau - Edu.et

Uploaded by

Copyright:

Available Formats

Assignment

You might also like