Assignment
1. Using the data provided, estimate the following OLS regression models for each of the three different types of expenses: wage expense, fixed asset expenses, and total non-interest expenses (i.e. run three different regressions).
Expense = α + β1*R.E. Loans + β2*Pers. Loans + β3*Small Bus. Loans + ε
2. Interpret the coefficients and explanatory power of the models in part1. Which costs are fixed and variable? Does the size and statistical significance of these coefficients seem to match what you would think about the three different types of costs?
3. Estimate the wage expense for a bank with $70 million in small business loans, $285 million in real estate loans, and $10 million in personal loans.
4. A member of Fictitious' board believes that Fictious' labor costs are too high relative to the amount of loans they make. He cites a study conducted by a large accounting firm, which included data from banks such as Bank of America and Wells Fargo. Conceptually (without comparing models, etc.), discuss the validity of the board members claim.