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  3. Equity Valuation in R

Exercise

Strength of Relationship

The plot shows that there is a positive relationship between P/B and ROE. However, we may want to know how strong this relationship is from a quantitative perspective. The strength of the relationship between ROE and P/B can be determined by looking at the R-squared of the regression, which is a measure of how good the fit of the model is. In this exercise, we regress P/B on Return on Equity and output the summary of the model.

Also, for use in the next exercise, store the intercept in a and beta in b.

Instructions

100 XP
  • Call summary() on the regression object.
  • Store the intercept term in a.
  • Store beta in b.