One of the theories regarding initial public offering (IPO) pricing is that the initial return y (the percentage change from offer to open price) on an IPO depends on the price revision x (the percentage change from pre-offer to offer price). Another factor that may influence the initial return is a high-tech dummy variable that equals 1 for high-tech firms and 0 otherwise. The following table shows a portion of the data on 264 IPO firms from January 2001 through September 2004.

a. Estimate y = ?₀ + ?₁x + ?₂d + ? where the dummy variable d equals 1 for firms that are high-tech. Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. Find the corresponding predicted return of a firm that is not high-tech.

b. Estimate y = ?₀ + ?₁x + ?₂d + ? where the dummy variable d equals 1 for firms that are not high-tech. Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. Find the corresponding predicted return of a firm that is not high-tech.

c. In the above two models, determine if the dummy variable is significant at the 5% level.

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Initlal Return Price Revision High-Tech 33.93 7.14 18.68 -26.39 0.08 -29.41 1