BE314 FINANCIAL MODELLING

Assignment

QUESTION 1[50%]
You have been consulted by the government to investigate the demand for Cityrail services.
It is believed that demand is positively related to petrol prices and the percentage of trains
arriving on time during peak periods. The following monthly data were recorded for 200607.

Month
July
August
September
October
November
December
January
February
March
April
May
June

Train tickets sales

(million)
22.60
24.80
23.00
24.09
23.93
21.08
21.53
22.41
26.11
22.80
25.90
23.00

Petrol Price
($/litre)
1.35
1.33
1.20
1.13
1.12
1.16
1.12
1.13
1.22
1.24
1.29
1.28

Percentage of
trains on time
93.9
91.3
92.1
93.9
93.7
94.7
94.0
91.7
91.2
91.2
91.6
86.6

a. Use Excels Data Analysis functions to determine the predictive model for the
above data.
[8 marks]
b. Interpret the meaning of the slope coefficient, b1 and b2.

[2 marks]

c. Explain why coefficient b0 would have no practical meaning in the context of this
problem.
[1 marks]
d. Predict the train ticket sales for a month with a petrol price of $1.30/litre and 90% of
trains being on time.
[4 marks]
e. Construct a 95% confidence interval estimate for the mean train ticket sales for a
month with a petrol price of $2.30/litre and 90%of the trains being on time.
[4 marks]
f. Determine whether there is a significant relationship between ticket sales and the two
independent variables at the 0.05 level of significance.
[5 marks]
g. Interpret the meaning of the p-value.

[2 marks]

h. Calculate the coefficient of multiple determination, R2 and interpret its meaning.

1

[4 marks]
i. Calculate the adjusted R2.

[2 marks]

j. Perform a residual anlaysis on your results and determine the adequacy of this model.
[3 marks]
k. Plot the residuals against the weekdays(time). Is there evidence of a pattern in the
residuals? Explain.
[4 marks]
l. Determine the Durbin-Watson statistics.

[8 marks]

m. At the 0.05 level of significance, is there evidence of positive autocorrelation in the

residuals?
[3 marks]

QUESTION 2 [50%]
Use the Excel file Assignment_Olympic for this question.
PART A
Suppose you think that the relationship between the number of Olympic medals regressed on
GDP per capita is likely heteroskedastic.
a. First use informal graphical methods to investigate heteroskedasticity. Create a
scatter plot with Olympic medals on the y-axis and GDP per capita on the x-axis.
[5 marks]
b. Now use another graph to investigate the same issue. Regress Olympic medals on
GDP per capita and save the residuals. Create a scatter plot with the residuals on the
y-axis and GDP per capita on the x-axis.
[10 marks]
c. Looking at the two scatter plots, do you think heteroskedasticity exist? What are the
implications of heteroskedasticity on your regression analysis?
[5 marks]
PART B
a. Use the Breaush Pagan test to formally test if heteroskedasticity exists in these data.
What do you conclude?
[8 marks]
b. Use the modified Whites test to formally test if heteroskedasticity exists in these
data. What do you conclude?
[8 marks]
c. Use the Goldfeld-Quandt test to formally test if heteroskedasticity exist s in these
data. What do you conclude.
[8 marks]
d. Do you thnk it is necessary to use three different test to see if heteroskedasticity
exists in these data? Comment on the conditions under which easch of these three
tests would be more preferable.
[6 marks]