In a study to determine the factors affecting the price of a particular stock, a financial analyst conducted a multiple regression analysis. The analyst found the following regression equation: $$ Price = 20 + 3 imes Earnings + 2 imes Dividends - 1 imes Debt $$ Where: Price = stock price Earnings = earnings per share Dividends = dividends per share Debt = total debt to equity ratio The analyst conducted a hypothesis test to assess whether the Earnings coefficient is statistically significant at the 5% significance level. The null hypothesis ($$ H_0 $$) is that the coefficient of Earnings is equal to zero ($$ eta_{Earnings} = 0 $$). If the p-value associated with the coefficient of Earnings is 0.03, what should the analyst conclude regarding the null hypothesis?

Exam

CFA Level 2

Section

Difficulty

Quantitative Methods

Testing Earnings Coefficient Significance in Regression

Easy Multiple Regression Analysis Hypothesis Testing

In a study to determine the factors affecting the price of a particular stock, a financial analyst conducted a multiple regression analysis. The analyst found the following regression equation:

$$ Price = 20 + 3 imes Earnings + 2 imes Dividends - 1 imes Debt $$

Where:

Price = stock price
Earnings = earnings per share
Dividends = dividends per share
Debt = total debt to equity ratio

The analyst conducted a hypothesis test to assess whether the Earnings coefficient is statistically significant at the 5% significance level. The null hypothesis ($$ H_0 $$) is that the coefficient of Earnings is equal to zero ($$ eta_{Earnings} = 0 $$). If the p-value associated with the coefficient of Earnings is 0.03, what should the analyst conclude regarding the null hypothesis?

Fail to reject the null hypothesis.

Reject the null hypothesis.

Insufficient information to make a conclusion.

Hint

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