Chapter 4
Question 1
The following table was created using the data in CEOSAL2, where standard errors are in
parentheses below the coefficients:
The variable mktval is market value of the firm, profmarg is profit as a percentage of
sales, ceoten is years as CEO with the current company, and comten is total years with the
company.
i. Comment on the effect of profmarg on CEO salary.
ii. Does market value have a significant effect? Explain.
iii. Interpret the coefficients on ceoten and comten. Are these explanatory variables
statistically significant?
Question 2
The following equation was obtained by OLS, where standard errors are in parentheses below
the coefficients:
^
log ( price)=0.264+1.043 log ( assess )+ 0.0074 log ( lotsize )−0.1032log (sqrft )+0.0338 bdrms
(0.570) (0.151) (0.0386) (0.1384) (0.0221)
n = 88, R = 0.773
2
where price is defined as the house price, in thousands of dollars; assess is the assessed
housing value (before the house was sold) (in thousands); lotsize is size of the lot (in square
feet); sqrft is the square footage; bdrms is number of bedrooms.
i. Comment on the effect of assess on house price in log function. Does size of the lot
have a significant effect? Explain.
ii. Interpret the coefficients on sqrft and bdrms. Are these explanatory variables
statistically significant?
Question 3
The data set 401KSUBS contains information on net financial wealth (nettfa), age of the
survey respondent (age), annual family income (inc), family size ( fsize), and participation in
certain pension plans for people in the United States. The wealth and income variables are
both recorded in thousands of dollars. For this question, use only the data for single-person
households (so fsize = 1).
i. How many single-person households are there in the data set?
ii. Use OLS to estimate the model
nettfa=β 0 + β 1 inc + β 2 age+u
and report the results using the usual format. Be sure to use only the single-person
households in the sample. Interpret the slope coefficients. Are there any surprises in
the slope estimates?
iii. Does the intercept from the regression in part (ii) have an interesting meaning?
Explain.
iv. Find the p-value for the test H 0: β 2 = 1 against H1: β 2 < 1. Do you reject H0 at the 1%
significance level?
v. If you do a simple regression of nettfa on inc, is the estimated coefficient on inc much
different from the estimate in part (ii)? Why or why not?
Question 4
Use the data in MLB1 for this exercise.
i. Use the model estimated in equation (4.31) and drop the variable rbisyr. What
happens to the statistical significance of hrunsyr? What about the size of the
coefficient on hrunsyr?
ii. Add the variables runsyr (runs per year), fldperc (fielding percentage), and sbasesyr
(stolen bases per year) to the model from part (i). Which of these factors are
individually significant?
iii. In the model from part (ii), test the joint significance of bavg, fldperc, and sbasesyr.
