In response to the global financial crisis Federal Reserve l

In response to the global financial crisis, Federal Reserve leaders continue to keep the short-run target interest rate near zero. While the Fed controls short-term interest rates, long-term interest rates essentially depend on supply/demand dynamics, as well as longer-term interest rate expectations. Consider the following annualized rates for 3-month Treasury yields and 10-year Treasury yields. Use Table 2.

Solution

b)

Using technology, we get              
              
slope =    0.304239253          
intercept =    3.515583863          
              
Thus, the regression line is              
              
10 year yield^ = 3.515583863 + 0.304239253 *(3 month yield) [ANSWER]

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c)

Also, getting the correlation,              
              
r =    0.826155585          
              
Thus, the coefficient of determination is              
              
r^2 =    0.68253305 = 68.25%.          
              
Thus, it is OPTION C. [ANSWER]

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d)

As t = r sqrt [(n - 2) / (1 - r^2)], then          
          
t =    4.147224797      
          
As alpha =    0.05      
df =    8      
          
Then          
          
tcrit =    2.306004135      
          
There is significant evidence that correlation between the variables is significant.   [YES]

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