10 pts.) A company developed the following regression model to forecast quarterly prices of one of its major products for 2013 and 2014. P = a + bt + c1D1 + c2D2 +

c3D3 + e. Where, P = price of the product, t is the trend variable, D1 is a dummy variable for quarter I, D2 is a dummy variable for quarter II, and D3 is a dummy

for quarter III. In quarter I: D1 = 1, D2 = 0, and D3 = 0. In quarter II: D2 = 1, D1 = 0, and D3 = 0 In quarter III: D3 = 1, D1 = 0, and D2 = 0. The company

estimated this model using 35 quarterly observations for the period 2004II ?o 2012IV. Where, t = 1 for 2004II,”?”?”?.., and equals 35 for 2012IV. Upon estimation of

this model, the company obtained the regression results given in the table below. Explanatory Variable Estimates of Parameters a, b, c1, c2, and c3 t-Statistics

Intercept 34.0 3.87 t 1.80 3.33 D1 8.0 3.08 D2 -7.5 -3.34 D3 -9.5 -3.67 a. Is the trend variable significant at 1% significance level? What does the trend tell us?

b. Are the dummy variables statistically significant at 1% significance level? Explain why or why not? c. Write the estimated price trend equation using the

coefficient estimates in the table above. d. Based on the estimated regression equation, what is the predicted price of this product in quarter III of 2013? e.

Based on the estimated regression equation, what is the predicted price of this product in quarter II of 2014?