Question: Predicting the return on Treasury bills. Table 10.1 (page 498) gives data on the rate of inflation and the percent return on Treasury bills for

Predicting the return on Treasury bills. Table 10.1 (page 498) gives data on the rate of inflation and the percent return on Treasury bills for 55 years.

Figures 10.9 and 10.10 analyze these data. You think that next year’s inflation rate will be 2.25%. Figure 10.16 displays part of the Minitab regression output, including predicted values for x* 5 2.25. The basic output agrees with the Excel results in Figure 10.10.

(a) Verify the predicted value y⁄

5 3.8844 from the equation of the leastsquares line.

(b) What is your 95% interval for predicting next year’s return on Treasury bills?

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