SMMD: DHM2

Assignment 4
Due: Thursday, August 26th 05:15 PM

Instructions

1. This is an individual assignment and will account for 5% of the course grade.

2. It requires the Apple.jmp dataset which is available on the course website alongside this
homework.

3. Please perform the required data analysis using JMP and turn in a brief report of no more
than 3 pages (sides) before the scheduled deadline and submit it on the LMS. No separate
JMP files or appendices should be provided. Please copy and paste any relevant JMP
output into the document itself.

4. Please remember to include your name, section number and ID at the top of the
assignment.

5. The homework submissions will not be graded for correctness, but rather for effort. The
scoring will be binary – you will get full credit if your effort is deemed satisfactory,
otherwise you will get no credit. No credit will be given for late submissions. A timely
submission that responds to all questions and shows your thinking will be considered
satisfactory whether or not your solution is correct.

6. Honor code category 2N-b applies. Please ensure that the submitted write-up is entirely
your own work. Significant overlaps with other submissions maybe considered as
possible instances of violation of the honor code.

Have fun!
Description of the dataset:
The given data tracks the monthly performance of the Apple Computer stock since its
inception in December, 1980 through the end of 2005. The data include 300 monthly returns
on Apple, the returns on IBM, as well as returns on the entire stock market. The column
Market Index Return is the return on a value-weighted portfolio that purchases stock in
proportion to the size of the company rather than one of each stock. Formulate a regression
model with Apple Return as the response and Market Index Return and IBM Return as
explanatory variables.

Assignment 4
Due: Thursday, August 26th 05:15 PM

1. Examine scatterplots of the relationships between the three variables in the regression
model. Do you notice any unusual features in the data? Do the relevant plots appear
reasonable for multiple regression?

2. Fit the indicated multiple regression model and show the "Summary of Fit",
"Analysis of Variance", and "Parameter Estimates" table. Interpret the regression
output from all these tables.

3. Does the estimated model appear to meet the conditions for the use of the Multiple
Regression Model? You must include the “Residuals vs. Predicted Values” plot to
check for the constant variance (homoskedasticity) assumption, and the normal
quantile plot of residuals to check for the normality of errors. Also, plot the residuals
against time to check the assumption of no autocorrelation (i.e. εt and εt-1 are not
correlated) in the error. Comment on these plots.

4. Build a 95% prediction interval for Apple Return when the Market Return is 5% and
IBM return is -2%. Provide an interpretation of this interval.

5. Create a simple regression model of Apple Returns on the Market Returns. Compare
the slope of this model with that obtained for Market Returns in Q2 above.
[OPTIONAL, but highly recommended to try]: Show how you can derive one from the
other with the help of an SLR of IBM returns on Market Index Returns.