assume that you have also run a sector regression on a company and estimated a price 546317

Assume that you have done a regression of PBV ratios for all firms on the New York Stock Exchange and arrived at the following result.

PBV = 0.88 +0.82 PAYOUT +7.79 GROWTH -0.41 BETA + 13.81 ROE{R²=0.65}

where,

Payout = Dividend Payout ratio during most recent period

Beta = Beta of the stock in most current period

Growth = Projected Growth rate in Earnings over next five years

To illustrate, a firm with a payout ratio of 40%, a beta of 1.25, a ROE of 25% and expected growth rate of 15%, would have had a price/book value ratio of:

PBV = 0.88 +0.82 (0.4) +7.79 (0.15) – 0.41 (1.25)+ 13.81 (0.25) = 5.3165

a. What, if any, use would you put the R squared of the regression to?

b. Assume that you have also run a sector regression on a company and estimated a price to book ratio based upon that regression. Why might your result from the market regression yield a different result from the sector regression?