Question

A computer analysis reveals that the best-fitting trend model is yt = 4.12e0.987t. The trend was fitted using year-end common stock prices for Melodic Kortholt Outlet for the last six years. The R2 is 0.8571. Which conclusion is not supportable? The absolute annual growth (in dollars per share) is increasing. Few investments could match the astounding growth rate. The exponential model is inappropriate for financial data. At the end of year 3 the stock price would be nearly $80.

Answer 1

ANSWER:

3 is true. Stock price woul be be 79 approx

Absolute growth rate is given by derivative of yt = 4.12*0.987 e^0.987t. This is an increasing function. Hence, A is also true.

B is not supported since we have no data of other financial instruments to see if they can match the astounding growth rate from a stastical perspective only.

comment if you have any doubt

thank you