CFA Practice Question

There are 208 practice questions for this study session.

CFA Practice Question

An empirical finance professor estimates the following regression between the return on a stock, R, and the return on S&P 500 index, Rsp:

R = 5% + 1.1 Rsp + error term

If the regression R-square is 0.25, estimate the change in the return on the stock when the return on the S&P 500 index changes from 12% to 15%.
A. 3.3%
B. 8.8%
C. 18.2%
Explanation: With the given regression, the change in the return on the stock when the return on the S&P 500 index changes by one unit equals the slope coefficient, 1.1. Hence, when the return on the S&P 500 index changes by 3% from 12% to 15%, the return on the stock will change by 1.1*3% = 3.3%

User Contributed Comments 2

User Comment
seele It's asking for absolute change, not % change!
sg2006 its asking for the change in returns not the return
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