## Assignment #2

We will continue to use the data file eaef01.dta So open up Stata and

load the DO file which you created last week, to which we are now going to add some

additional instructions.

1. Calculate the correlation between *EARNINGS *and *S*.

Now run a regression of

* **EARNINGS _{i} =α+ β*

*S*+ε

_{i}_{i}(1)

(a) What is the interpretation of the coefficient on the *S *variable?

(b) Test the hypothesis β= 0**.**

(c) What is the TSS of the model?

(d) What is the p-value of the test undertaken in (b)

(e) Construct a 95% confidence interval for the coefficient on β.

(f) What is the error variance for this model?

(g) What is the relationship between the *R*2 from equation (1) and correlation between *EARNINGS *and *S*?

(i) Use the Test options in Stata to test the null hypotheses that the coefficient on

*S *is 0.25 at the 5% significance level.

(k) Explain the meaning of R^{2 }and F statistics.