A financial analyst believes that the best way to predict a firm’s returns is by using the firm’s price-to-earnings rati

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A financial analyst believes that the best way to predict afirm’s returns is by using the firm’s price-to-earnings ratio (P/E)and its price-to-sales ratio (P/S) as explanatory variables. Heestimates the following regression, using 30 large firms:
ReturnˆReturn^ = −33.14 + 3.19P/E −3.22P/S; SSE = 5,014.93; n =30
A colleague suggests that he can improve on his prediction if healso includes the P/E-to-growth ratio (PEG) and the dividend yield(DIV). He re-estimates the model by including these explanatoryvariables and obtains.
ReturnˆReturn^ = −33.34 + 4.58P/E − 2.33P/S − 11.93PEG +3.38DIV; SSE = 4,143.92; n =30.
(You may find it useful to referencethe F table.)
a. Choose the appropriate hypotheses todetermine whether including the PEG and DIV variables impacts thepredictability of earnings.
multiple choice
H0: β3 = β4 =0; HA: At least one of thecoefficients is nonzero.
H0: β3 = β4 =0; HA: At least one of thecoefficients is greater than zero.
H0: β3 = β4 =0; HA: At least one of thecoefficients is greater than zero.
b-1. Calculate the value of the teststatistic. (Round final answer to 3 decimalplaces.)
b-2. Find the p-value.
multiple choice
0.05 pvalue< 0.10
0.025 pvalue< 0.05
0.01 pvalue< 0.025
pvalue < 0.01
pvalue 0.10
c. At the 5% significance level, what isthe conclusion to the test? Is the colleague’s claimsubstantiated by the data?
multiple choice
Reject H0; the colleague’s claim issubstantiated by the data.
Reject H0; the colleague’s claim is notsubstantiated by the data.
Do not reject H0; the colleague’s claimis substantiated by the data.
Do not reject H0; the colleague’s claimis not substantiated by the data.