Consider the interest rates on securities with various terms to maturity, shown in Table 12.5.18.
a. Find the regression equation to predict the longterm interest rate (Treasury bonds) from the two shorter-term rates.
b. Create a new variable, “interaction,” by multiplying the two shorter-term rates together. Find the regression equation to predict the long-term interest rate (Treasury bonds) from both of the shorter-term rates and the interaction.
c. Test whether there is any interaction between the two shorter-term interest rates that would enter into the relationship between short-term and long-term interest rates.

  • CreatedNovember 11, 2015
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