Functional Form Homework



Functional Form Homework

You are (hopefully) thinking about your term project. One good source of data is the Economic Report of the President. . You might want to just take a look if you are interested in U.S. time series data.

As you know, there has been some talk about the changes in the return from stocks in recent decades. Go to B-95 and B-96 to gather the data on an annual basis. You can copy and paste the data into Minitab.

1. Find out the change in the Dow-Jones Industrial Average[1] for each of the time periods below. Write your answer in the box below and attach your output as well.

|Years |Annual Change in Dow Jones Industrial Average |

|1970-1979 | |

|1980-1989 | |

|1990-1999 | |

|2000-2005 | |

2. 2. Inflation is the annual rate of change in prices. If we take a price index and find the annual rate of change we have the inflation rate. Please use the CPI-U (Consumer Price Index for Urban Consumers) from Table 60 to calculate the annual inflation rate (rate of growth in prices ) the time periods below. Write your answer in the box below and attach your output as well.

|Years |Inflation Annual Change in Prices |

|1970-1979 | |

|1980-1989 | |

|1990-1999 | |

|2000-2005 | |

3. I would argue that investors are interested in the real (after inflation) rate of return. What has been the annual change in the Dow Jones Industrial Average for each team period net of inflation?

|Years |Annual Change in Dow Jones |

| |Industrial Average Net of Inflation |

|1970-1979 | |

|1980-1989 | |

|1990-1999 | |

|2000-2005 | |

4. So what can you say about the real change in the Dow since 2000 compared to 1990-99?

5. Text 9-15e. Also, calculate predicted Y when X = 50, 70 and 90.

-----------------------

[1] Dow Jones Industrial Average is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The 30 stocks are chosen by the editors of the Wall Street Journal (which is published by Dow Jones & Company), a practice that dates back to the beginning of the century. The Dow was officially started by Charles Dow in 1896, at which time it consisted of only 11 stocks. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. Simply put, the editors at WSJ add up the prices of all the stocks and then divide by the number of stocks in the index. (In actuality, the divisor is much higher today in order to account for stock splits that have occurred in the past.)

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download