ASSIGNMENT

NAME: ODINAKA OBINNA AUGUSTINE

DEPARTMENT: FINANCIAL MANAGEMENT

COURSE: APPLIED QUANTITATIVE TECHNIQUE (MGT 707)

1a)

Table: County Taxes

Y X1 X2 X1Y X2Y X21 X22 Y2 X1X2

1 818 1 10 818 8180 1 100 669124 10
2 779 2 9 1558 7011 4 81 606841 18
3 770 4 9 3080 6930 16 81 592900 36
4 731 5 9 3655 6579 25 81 534361 45
5 689 8 8 5512 5512 64 64 474721 64
6 652 10 7 6520 4564 100 49 425104 70
7 609 12 6 7308 3654 144 36 370881 72
8 673 15 9 10095 6057 225 81 452929 135
9 584 20 8 11680 4672 400 64 341056 160
10 516 25 7 12900 3612 625 49 266256 175
11 555 30 9 16650 4995 900 81 308025 270
12 406 35 6 14210 2436 1225 36 164836 210
13 507 40 10 20280 5070 1600 100 257049 400
14 395 50 8 19750 3160 2500 64 156025 400
∑ 8684 257 115 134016 72432 7829 967 5620108 2065

Let Y (Dependent Variable) represent County Taxes

And X1, X2 (Independent Variables) represent Ages and Number of Rooms respectively

The regression model can be written as

^
y  b0  b1 x1  b2 x2 ------------------------------------------------------------------(a)

From equation (a) above we can form 3 normal equations by differentiation process
 ^
 y  nb0  b1  x1  b2  x2 -------------------------------------------------------(b)
^
2
 x1 y  b0  x1  b1  x1  b2  x1 x2 --------------------------------------------(c)
^
2 --------------------------------------------(d)
 x2 y  b0  x2  b1  x1 x2  b2  x2

Substituting

8684  14b0  257b1  115b2 --------------------------------------------------------(i)

134016  257b0  7829b1  2065b2 ------------------------------------------------(ii)

72432  115b0  2065b1  967b2 ---------------------------------------------------(iii)

Putting the 3 equations above in matrix form

I.e. in the form b  C

 14 257 115   b0   8684 

     
 257 7829 2065   b1  = 134016 
 115 2065 967   b   72432 
  2

 14 257 115   b0   8684 

     
   257 7829 2065  , b =  b1  , C= 134016 
 115 2065 967  b   72432 
  2  

Determinant of Matrix A is given by;

14 257 115
 = 257 7829 2065
115 2065 967

7829 2065 257 2065 257 7829

=14  257  115
2065 967 115 967 115 2065

=14   7829 967    2065 2065   257   257  967    2065115    115   257  2065  115  7829  

  46,289,852  2,838,308    42,507,450 

  944,094

By Cramer’s Rule

i
bi  i = 0, 1, 2


i  Determinant of the matrix obtained by replacing the ith Column of matrix A by a right hand vector b

8684 257 115

0 = 134016 7829 2065
72432 2065 967

7829 2065 134016 2065 134016 7829

0 =8684  257  115
2065 967 72432 967 72432 2065

=8684   7829 967    2065 2065   257  134016  967    2065 72432    115
 134016 2065   72432 7829 

   
 2.871293391 1010  5,134,502,256   3.338761512 1010 
 0  459,821,046

0
b0 


459,821,046
b0 
944,094

b0  487.05

14 8684 115
1 = 257 134016 2065
115 72432 967

134016 2065 257 2065 257 134016

1 =14  8684  115 115
72432 967 115 967 72432

=14  134016  967    2065 72432   8684   257  967    2065115    115
  257  72432  134016115  
   279,700,512  95,906,096  368,366,160

1  7,240,448

1
b1 


 7,240,448
b1 
944,094

b1  7.6692

14 257 8684
2 = 257 7829 134016
115 2065 72432

7829 134016 257 134016 257 7829

=14  257  8684
2065 72432 115 72432 115 2065
=14   7829 72432  134016 2065   257   257  72432  134016115    8684
  257  2065  115  7829  
  4,064,579,232  823,218,288    3,209,868,920 

 2  31,494,024

2
b2 


31,494,024
b2 
944,094

b2  33.359

:. The estimated fitted regression model is

^
y  487.05  7.6692 x1  33.359 x2

1b) The value -7.6692 means that County Taxes decreases by 7.6692 for every unit increase in Age. The
value 33.3590 means that County Taxes increase by 33.3590 for every unit increase in the Number of
Rooms for single family houses.
1c) Substituting x1 and x2 into equation (e) above to calculate the predicted values of Y

^
y  487.05  7.6692 x1  33.359 x2

When x1= 1and x2=10 When x1= 2and x2=9

y1  487.05  7.66921  33.35910  y 2  487.05  7.6692 2  33.359 9

y1  487.05-7.6692+333.59 y 2  487.05-15.3384+300.231

y1  812.9708 y 2  771.9426

When x1= 4and x2=9 When x1= 5and x2=9

y 3  487.05  7.6692 4   33.359 9  y 4  487.05  7.6692 5  33.359 9 

y 3  487.05-30.6768+300.231 y 4  487.05-38.346+300.231

y 3  756.6042 y 4  748.935

YA (Actual YP(Predicted Error

Y) Y) (e) e2 Y A2 YP2
818 812.9708 5.0292 25.29285 669124 660921.5
779 771.9426 7.0574 49.80689 606841 595895.4
770 756.6042 13.3958 179.4475 592900 572449.9
731 748.935 -17.935 321.6642 534361 560903.6
689 692.5684 -3.5684 12.73348 474721 479651
652 643.871 8.129 66.08064 425104 414569.9
609 595.1736 13.8264 191.1693 370881 354231.6
673 672.243 0.757 0.573049 452929 451910.7
584 600.538 -16.538 273.5054 341056 360645.9
516 528.833 -12.833 164.6859 266256 279664.3
555 557.205 -2.205 4.862025 308025 310477.4
406 418.782 -12.782 163.3795 164836 175378.4
507 513.872 -6.872 47.22438 257049 264064.4
 395 370.462 24.538 602.1134 156025 137242.1
∑ 8684 8684.0006   2102.539 5620108 5618006

Using Analysis of Variance Method

To test whether or not there is a significant relationship between the dependent variable Y and the
independent variables x1 and x2 in multiple regressions.

We could have

HO: b1=b2=0 --------------------------------Null hypothesis

Versus

Hi: b1≠0 for i=1&2

Accept the null hypothesis if

FCalculated < F1-α (k, n-k-1)

Otherwise the null hypothesis is rejected in favour of Hi: b1≠0 for i=1&2

 e2 2102.5386
Var (e) = = = 175.21155
nk 14  2

Sum of Squares of Regression is given by

^ 2
SSreg = ∑ y
2
 ^

  y 
  
n

= 5,618,006.1 
 8684 2 = 231,444.2128
14

Total Sum of squares of Y

SSTotal = ∑y 2

  y
2

n
= 5,620,108 
 8684 2 = 233,546.8571
14
Sum of Squares of Error

SSError = SSTotal - SSreg =2102.6

Mean of Squares is given by;

SS
MS = d . f

MS Re g
F-Ratio =
MS Error

ANOVA TABLE

Model Sum of Squares Degree of Mean Square Variance Ratio

(SS) Freedom (d.f) (MS) ( F-Ratio)
Regression 231,444.2128 2 115,722.1064 605.4137
Error(Residual) 2102.6000 11 191.1455
Total 233,546.8571 13 17,965.1429

F-Ratio Calculated = 605.4137

 2 ,11 
F-Ratio from Table i.e. F 0.95 = 3.98 (From F-distribution Table)
For an accuracy of 95%

Since F-Ratio Calculated> F-Ratio from Table well reject the null hypothesis and we conclude that at
least one variable contributes significantly to the regression

Coefficient of Determination

SS Re g
R2=
SS y
This gives the amount of variation explained by the model (i.e. lies between 0≤ R2≤1)

231,444.2128
R2= 233,546.8571 =0.991
This shows that the Age and Number of rooms for single family houses explains 99.1% of the total
variation in County Taxes.

Furthermore, it implies a high goodness of fit of the regression model to the sample data and can be used
for meaningful analysis and decision.

2a)

Table: Stock Price

Y X1 X2 X1Y X2Y X12 X22 Y2 X1X2

1 4 -8 -12.2 -32 -48.8 64 148.84 16 97.6
2 17 10 11.6 170 197.2 100 134.56 289 116
3 19 11 14.5 209 275.5 121 210.25 361 159.5
4 26 6 15.6 156 405.6 36 243.36 676 93.6
5 32 34 16 1088 512 1156 256 1024 544
6 21 49 12.5 1029 262.5 2401 156.25 441 612.5
7 46 49 8.8 2254 404.8 2401 77.44 2116 431.2
8 34 7 17.8 238 605.2 49 316.84 1156 124.6
9 37 47 9 1739 333 2209 81 1369 423
10 44 10 17.1 440 752.4 100 292.41 1936 171
11 23 11 -1 253 -23 121 1 529 -11
 12 10 12 7 120 70 144 49 100 84
13 110 76 14 8360 1540 5776 196 12100 1064
14 22 22 7.7 484 169.4 484 59.29 484 169.4
15 29 16 20.7 464 600.3 256 428.49 841 331.2
16 32 5 12.7 160 406.4 25 161.29 1024 63.5
17 32 20 14.9 640 476.8 400 222.01 1024 298
18 39 24 5.4 936 210.6 576 29.16 1521 129.6
19 5 6 -41.2 30 -206 36 1697.44 25 -247.2
20 13 3 22.6 39 293.8 9 510.76 169 67.8
21 43 21 6 903 258 441 36 1849 126
22 23 17 3.9 391 89.7 289 15.21 529 66.3
23 23 10 9.4 230 216.2 100 88.36 529 94
24 70 26 22 1820 1540 676 484 4900 572
25 85 63 7.3 5355 620.5 3969 53.29 7225 459.9
26 24 18 12.8 432 307.2 324 163.84 576 230.4
27 35 11 15 385 525 121 225 1225 165
28 52 48 10.3 2496 535.6 2304 106.09 2704 494.4
29 41 6 19.5 246 799.5 36 380.25 1681 117
30 110 36 25 3960 2750 1296 625 12100 900
31 41 50 6.5 2050 266.5 2500 42.25 1681 325
32 30 19 16.2 570 486 361 262.44 900 307.8
33 13 16 -17 208 -221 256 289 169 -272
34 34 8 11.5 272 391 64 132.25 1156 92
35 16 4 12.8 64 204.8 16 163.84 256 51.2
36 21 10 24.6 210 516.6 100 605.16 441 246
37 24 14 -0.9 336 -21.6 196 0.81 576 -12.6
38 25 10 16.2 250 405 100 262.44 625 162
39 28 8 16.2 224 453.6 64 262.44 784 129.6
40 41 45 9.9 1845 405.9 2025 98.01 1681 445.5
 ∑ 1374 850 400.7 41024 17766.2 31702 9567.07 68788 9421.8

Let Y (Dependent Variable) represent Current Selling Price

And X1, X2 (Independent Variables) represent Book Value and Return on Common
Equity respectively

The regression model can be written as

^
y  b0  b1 x1  b2 x2 ------------------------------------------------------------------(a)

From equation (a) above we can form 3 normal equations by differentiation process

^
 y  nb0  b1  x1  b2  x2 -------------------------------------------------------(b)
 ^
2
 x1 y  b0  x1  b1  x1  b2  x1 x2 --------------------------------------------(c)
^
2 --------------------------------------------(d)
 x2 y  b0  x2  b1  x1 x2  b2  x2

Substituting

1374  40b0  850b1  400.7b2 --------------------------------------------------------(i)

41024  850b0  31702b1  9421.8b2 ------------------------------------------------(ii)

17766.2  400.7b0  9421.8b1  9567.07b2 ---------------------------------------------------

(iii)

Putting the 3 equations above in matrix form

I.e. in the form b  C

 40 850 400.7   b0   1374 

     
 850 31702 9421.8   b1  =  41024 
 400.7 9421.8 9567.07   b  17766.2 
   2

 40 850 400.7   b0   1374 

     
A=  850 31702 9421.8  , b =  b1  , C=  41024 
 400.7 9421.8 9567.07  b  17766.2 
   2  

Determinant of Matrix A is given by;

40 850 400.7
 = 850 31702 9421.8
400.7 9421.8 9567.07
31702 9421.8 850 9421.8 850 31702
=40 9421.8  850  400.7
9567.07 400.7 9567.07 400.7 9421.8

=40   31702 9567.07    9421.8 9421.8   850   850  9567.07    9421.8 400.7    400.7
  850 9421.8  115 7829 
  8,580,997,516  3,703,190,104    1,881,070,683 
  2,996,736,729

By Cramer’s Rule

i
bi  i = 0, 1, 2


i  Determinant of the matrix obtained by replacing the ith Column of matrix A by a right hand vector b

1374 850 400.7

0 = 41024 31702 9421.8
17766.2 9421.8 9567.07
31702 9421.8 41024 9421.8 41024 31702
=1374 9421.8  850  400.7
9567.07 17766.2 9567.07 17766.2 9421.8

=1374   31702 9567.07    9421.8 9421.8   850   41024 9567.07    9421.817766.2   400.7
  41024  9421.8   31702 17766.2 

    
 2.947572647 1011  1.91326412 1011   7.080535258 1010 
 0  3,262550012  1010

0 3.262550012  1010
b0   =10.8870
 2,996,736,729

40 1374 400.7
1 = 850 41024 9421.8
400.7 17766.2 9567.07
41024 9421.8 850 9421.8 850 41024
=40 17766.2  1374  400.7
9567.07 400.7 9567.07 400.7 17766.2

=40   41024  9567.07    9421.817766.2   1374   850 9567.07    9421.8 400.7    400.7
 17766.2 850   41024 400.7  
   9,003,595,861   5,986,097,886    535,754,652.8 

1  2,481,743,322
1 2,481,743,322
b1   = 0.8281
 2,996,736,729
 40 850 1374
2 = 850 31702 41024
400.7 9421.8 17766.2
31702 41024 850 41024 850 31702
=40  850  1374
9421.8 17766.2 400.7 17766.2 400.7 9421.8

=40   3170217766.2   41024 9421.8   850   85017766.2   41024 400.7    1374

  850 9421.8   31702  400.7  

  7,068,165,968  1,136,489,780    6,450,189,964 

 2  1,754,465,784

2 1,754,465,784
b2   = 0.5850
 2,996,736,729

:. The estimated fitted regression model is

^
y  10.8870  0.8281x1  0.5850x2

2b)

YA YP e e2 YA2 YP2
4 -2.8748 6.8748 47.26288 16 8.264475
17 25.954 -8.954 80.17412 289 673.6101
19 28.4786 -9.4786 89.84386 361 811.0307
26 24.9816 1.0184 1.037139 676 624.0803
-
32 48.4024 16.4024 269.0387 1024 2342.792
-
21 58.7764 37.7764 1427.056 441 3454.665
-
46 56.6119 10.6119 112.6124 2116 3204.907
34 27.0967 6.9033 47.65555 1156 734.2312
-
37 55.0727 18.0727 326.6225 1369 3033.002
44 29.1715 14.8285 219.8844 1936 850.9764
23 19.4111 3.5889 12.8802 529 376.7908
-
10 24.9192 14.9192 222.5825 100 620.9665
110 82.0126 27.9874 783.2946 12100 6726.067
-
22 33.6097 11.6097 134.7851 484 1129.612
29 36.2461 -7.2461 52.50597 841 1313.78
32 22.457 9.543 91.06885 1024 504.3168
32 36.1655 -4.1655 17.35139 1024 1307.943
 39 33.9204 5.0796 25.80234 1521 1150.594
5 -8.2464 13.2464 175.4671 25 68.00311
-
13 26.5923 13.5923 184.7506 169 707.1504
43 31.7871 11.2129 125.7291 1849 1010.42
23 27.2462 -4.2462 18.03021 529 742.3554
23 24.667 -1.667 2.778889 529 608.4609
70 45.2876 24.7124 610.7027 4900 2050.967
85 67.3278 17.6722 312.3067 7225 4533.033
24 33.2808 -9.2808 86.13325 576 1107.612
35 28.7711 6.2289 38.7992 1225 827.7762
52 56.6613 -4.6613 21.72772 2704 3210.503
41 27.2631 13.7369 188.7024 1681 743.2766
110 55.3236 54.6764 2989.509 12100 3060.701
-
41 56.0945 15.0945 227.8439 1681 3146.593
30 36.0979 -6.0979 37.18438 900 1303.058
13 14.1916 -1.1916 1.419911 169 201.4015
34 24.2393 9.7607 95.27126 1156 587.5437
16 21.6874 -5.6874 32.34652 256 470.3433
21 33.559 -12.559 157.7285 441 1126.206
24 21.9539 2.0461 4.186525 576 481.9737
25 28.645 -3.645 13.28603 625 820.536
28 26.9888 1.0112 1.022525 784 728.3953
41 53.943 -12.943 167.5212 1681 2909.847
1374 1373.775   9453.906 68788 59313.79

 e2 9453.906
Var (e) = = = 248.787
nk 40  2

Sum of Squares of Regression is given by

^ 2
SSreg = ∑ y
2
  y
^

 
  
n

= 59313.79 
1373.775 2 = 12,132.3462
40

Total Sum of squares of Y

SSTotal = ∑y2 
  y 2
n
= 68788 
1374 2 = 21,591.1
40

Sum of Squares of Error

SSError = SSTotal - SSreg = 9458.7538

Mean of Squares is given by;

SS
MS = d . f

Mean Squares
SS Re g 12,132.3462
MSreg = = =6066.1731
d. f 2

SS Error 9458.7538
MSError = = =255.6420
d. f 47

MS Re g
F-Ratio =
MS Error

Coefficient of Determination

SS Re g
R2=
SS y

This gives the amount of variation explained by the model (i.e. lies between 0≤ R2≤1)

12,132.3462
R2= = 0.56
21591.1000

56% of the total variation is explained (accounted for) by the regression model


The Adjusted R2: R 2

 n 1 
1  1  R 2 


R = 2
nk
 40  1 
= 1  1  0.56   =1-0.4516=0.5484
 40  2 
Adjusting R2 taking into account of degree of freedom we have 54.84% of the total variation being
explained by the regression model

Using the F-Test

MS Re g 6066.1731
F-Ratio = = =23.7292
MS Error 255.6420

F-Ratio Calculated = 23.7292

 2 , 37 
F-Ratio from Table i.e. F 0.95 = 3.25 (From F-distribution Table)
(For a α=0.05 level of significance)

Since F-Ratio Calculated> F-Ratio from Table well reject the null hypothesis and we conclude that at
least one variable contributes significantly to the regression

2c) From 2b above

Sum of Squares

SSreg =12,132.3462

SSTotal =21,591.1

SSError = SSTotal - SSreg = 9458.7538

Mean Squares
SS Re g 12,132.3462
MSreg = = =6066.1731
d. f 2

SS Error 12,132.3462
MSError = = =255.6420
d. f 47

Using Analysis of Variance Method

To test whether or not there is a significant relationship between the dependent variable Y and the
independent variables x1 and x2 in multiple regressions.

We could have

HO: b1=b2=0 --------------------------------Null hypothesis

Versus

Hi: b1≠0 for i=1&2

Accept the null hypothesis if

FCalculated < F1-α (k, n-k-1)

Otherwise the null hypothesis is rejected in favour of Hi: b1≠0 for i=1&2

ANOVA TABLE

Model Sum of Squares Degree of Mean Square Variance Ratio

(SS) Freedom (d.f) (MS) ( F-Ratio)
Regression 12,132.3462 2 6066.1731 23.7292
Error(Residual) 9458.7538 37 255.6420
Total 21,591.1000 39

Using the F-Test

MS Re g 6066.1731
F-Ratio = = =23.7292
MS Error 255.6420

F-Ratio Calculated = 23.7292

 2 , 37 
F-Ratio from Table i.e. F 0.95 = 3.25 (From F-distribution Table)
(For a α=0.05 level of significance)

Since F-Ratio Calculated> F-Ratio from Table well reject the null hypothesis and we conclude that at
least one variable contributes significantly to the regression