1. You have a number of variables -- a response variable andsome proposed predictors. A correlation matrix may help to give anidea of the strength of the linear relationships present. For thepurposes of regression analysis, what would be desirable in termsof … a) …the observed correlation between each proposed predictorand the response variable? (2) b) …the observed correlations amongthe predictors themselves?
(2) 2. Explain the fact that, over the course of a year, thevalue of r for the DOW adjusted closing value and the S&P500adjusted closing value is about 0.98 or higher.
(3) 3. Reconcile these observations: In a regression output, thep-value of the F-test is 2.36 E-06, while the value of R2 is 0.21.(3)
4. What causes the problem of multicollinearity? (2)
5. Interpretation of a regression coefficient: Suppose that in aSLR model, annual salary (in thousands of dollars) is estimated asa function of years of education. With explicit reference to thevariable units, interpret the value b1 = 3.42. (3)//15
