Finance Calculator
Texas Instruments BA II +


Regression

To perform a Linear Regression analysis, a second  variable needs to be added.   In this case, the yearly return on Stock J.  Leave the X variables, but change each of the Y variables from 1 to the following (2nd Data):

     Year                        Return on Stock J
       1 (Y01)                          38.6%
       2 (Y02)                         -24.7
       3 (Y03)                          12.3
       4 (Y04)                            8.2
       5 (Y05)                          40.1

To perform the regression, press 2nd Stat followed by 2nd SET, scrolling through and selecting LIN for linear regression.
Also press 2nd CLR Work to erase any old data.  Scrolling throught using the down arrow, the calculator should compute the following figures:


X' and Y' work together, if the value for X' is entered Y' will be computed.
For Instance if X'=2, compute Y', it will equal -5.716
Plugging these figures into the linear equation Y' = a + bX' we get Y' = -8.922 + 1.603X', which can be used to predict a Y variable given the X variable and an X variable given a Y variable. 
Therefore -5.716 (Y')= -8.922 + 1.603*2 (X')
This can be done manually or the BAII Plus will compute for you. Continue scrolling down until the screen displays X = 0. 

Suppose the market is predicted to have a 10% return the following year.  Enter this as the X variable then press the down arrow  and compute.  The screen should display Y = 7.1089.  This would be the return on stock J if the predicted market return was correct. 

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Last Updated on 1 May 2002, e-mail any comments to: robert.balik@wmich.edu