Answer Happy

Regress next year's total returns upon last year's inflation. We get the following plot: 0.4- 0.2- 0.0 -0.2 -0.4 -0.20 -0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20 Problem 1. [10 points] Is the dependence positive, negative, or zero? Problem 2. [10 points] We get the following regression results: coeff std err t P>|t| [0.025 0.975] const 0.0746 0.015 5.138 0.000 0.046 0.103 last year inflation -0.4058 0.239 -1.698 0.092 -0.878 0.066 Is the dependence of total returns upon last year's inflation statistically significant for levels 5%, 10%. Problem 3. [10 points] Estimate next year's returns if last year the inflation was 3%. Problem 4. [10 points] Considering the following quantile-quantile plot for residuals, find whether residuals are normal: 0.4 0.2- 0.0 -0.2 -0.4 -0.6 T 1 2 0 Theoretical Quantiles Sample Quantiles -2 -1