SM 121

Black, Chakrapani, Castillo: Business Statistics, Second Canadian Edition
Solutions Manual 12-1 Chapter 12

Copyright 2014 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly
prohibited.
SOLUTIONS TO PROBLEMS IN
CHAPTER 12: CORRELATION AND SIMPLE REGRESSION ANALYSIS

12.1 Ex = 80 Ex
2
= 1,148 Ey = 69
Ey
2
= 815 Exy = 624 n = 7

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
7
) 69 (
815
7
) 80 (
148 , 1
7
) 69 )( 80 (
624
2 2

=
) 857 . 134 )( 714 . 233 (
571 . 164
=

r =
533 . 177
571 . 164
= 0.927

12.2 Ex = 1,087 Ex
2
= 322,345 Ey = 2,032
Ey
2
= 878,686 Exy= 507,509 n = 5

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
5
) 032 , 2 (
686 , 878
5
) 087 , 1 (
345 , 322
5
) 032 , 2 )( 087 , 1 (
509 , 507
2 2
=

r =
) 2 . 881 , 52 )( 2 . 031 , 86 (
2 . 752 , 65
=
5 . 449 , 67
2 . 752 , 65

= .975


prohibited.

12.3 Air Canada (x) WestJet (y)
0.75 11.92
0.76 12.09
0.84 12.25
0.85 11.85
0.86 11.78
0.86 11.74

Ex = 4.92 Ey = 71.63 Exy = 58.7181
Ex
2
= 4.0474 Ey
2
= 855.3355

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (

=

r =
( )
0500 . 0
0185
6
) 63 . 71 (
3355 . 855
6
) 92 . 4 (
0474 . 4
6
) 63 . 71 )( 92 . 4 (
7181 . 58
2 2
=
(
= .37

12.4 Ex = 112,968,343 Ex
2
= 1,187,929,640,160,610
Ey = 92,274 Ey
2
= 606,130,090
Exy = 521,218,059,167 n = 23

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
23
) 274 , 2 9 (
090 , 130 , 06 6
23
) 343 , 968 , 12 1 (
610 , 160 , 640 , 929 , 187 , 1
23
) 274 , 2 9 )( 343 , 968 , 12 1 (
167 , 059 , 218 , 21 5
2 2
=

r = .176

prohibited.

12.5 Correlation between Year 1 and Year 2:

Ex = 17.09 Ex
2
= 58.7911
Ey = 15.12 Ey
2
= 41.7054
Exy = 48.97 n = 8

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
8
) 12 . 15 (
7054 . 41
8
) 09 . 17 (
7911 . 58
8
) 12 . 15 )( 09 . 17 (
97 . 48
2 2
=

r =
) 1286 . 13 )( 28259 . 22 (
6699 . 16
=
1038 . 17
6699 . 16
= .975

Correlation between Year 2 and Year 3:
Ex = 15.12 Ex
2
= 41.7054
Ey = 15.86 Ey
2
= 42.0396
Exy = 41.5934 n = 8

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
8
) 86 . 15 (
0396 . 42
8
) 12 . 15 (
7054 . 41
8
) 86 . 15 )( 12 . 15 (
5934 . 41
2 2
=

prohibited.

r =
) 59715 . 10 )( 1286 . 13 (
618 . 11
=
795 . 11
618 . 11
= .985

Correlation between Year 1 and Year 3:
Ex = 17.09 Ex
2
= 58.7911
Ey = 15.86 Ey
2
= 42.0396
Exy = 48.5827 n = 8

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
8
) 86 . 15 (
0396 . 42
8
) 09 . 17 (
7911 . 58
8
) 86 . 15 )( 09 . 17 (
5827 . 48
2 2

r =
) 5972 . 10 )( 2826 . 22 (
702 . 14
=
367 . 15
702 . 14
= .957

The Years 2 and 3 are the most correlated with r = .985.


prohibited.
12.6 x y
12 17
21 15
28 22
8 19
20 24

Ex = 89 Ey = 97 Exy = 1,767
Ex
2
= 1,833 Ey
2
= 1,935 n = 5

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
5
) 89 (
833 , 1
5
) 97 )( 89 (
767 , 1
2
= 0.162379

b
0
= ( )
5
89
162379 . 0
5
97
1
=

n
x
b
n
y
= 16.50965

y = 16.50965 + 0.162379 x

12.7 x_ _y_
140 25
119 29
103 46
91 70
65 88
29 112
24 128
0
5
10
15
20
25
30
0 5 10 15 20 25 30
y

x

prohibited.

Ex = 571 Ey= 498 Exy = 30,099
Ex
2
= 58,293 Ey
2
= 45,154 n = 7

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
7
) 571 (
293 , 58
7
) 498 )( 571 (
099 , 30
2
= 0.89824

b
0
=
7
571
) 89824 . 0 (
7
498
1
=

n
x
b
n
y
= 144.4136

y = 144.414 0.898 x

12.8 (Advertising) x (Sales) y
12.5 148
3.7 55
21.6 338
60.0 994
37.6 541
6.1 89
16.8 126
41.2 379

Ex = 199.5 Ey = 2,670 Exy = 107,610.4
Ex
2
= 7,667.15 Ey
2
= 1,587,328 n = 8

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
8
) 5 . 199 (
15 . 667 , 7
8
) 670 , 2 )( 5 . 199 (
4 . 610 , 107
2
= 15.23977

prohibited.

b
0
=
8
5 . 199
23977 . 15
8
670 , 2
1
=

n
x
b
n
y
= -46.29176

y = -46.292 + 15.240 x

12.9 (Prime) x (Bond) y
16 5
6 12
8 9
4 15
7 7
Ex = 41 Ey = 48 Exy = 333
Ex
2
= 421 Ey
2
= 524 n = 5
r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
5
) 48 (
524
5
) 41 (
421
5
) 48 )( 41 (
333
2 2

r =
( )
) 2 . 63 )( 8 . 84 (
6 . 60
= .828

Since r = 0.828, the bond rate can be predicted by the prime interest rate.

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
5
) 41 (
421
5
) 48 )( 41 (
333
2
= 0.71462

b
0
=
5
41
) 71462 . 0 (
5
48
1
=

n
x
b
n
y
= 15.4599

y = 15.460 0.715 x

prohibited.
12.10

Ex = 344.4 Ey = 221.3 Ex
2
= 19,774.78

Ey
2
= 8188.41 Exy = 12,708.08 n = 6
r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
6
) 3 . 221 (
41 . 8188
6
) 4 . 344 (
78 . 774 , 19
6
) 3 . 221 )( 4 . 344 (
08 . 708 , 12
2 2

r =
) 1283 . 26 )( 22 . 6 (
46 . 5
= 0.428

r = 0.428 represents a relatively moderate positive linear relationship between the
number of firm births and the number of business bankruptcies. .

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
6
) 4 . 344 (
78 . 774 , 19
6
) 3 . 221 )( 4 . 344 (
08 . 708 , 12
2
=

b
1
= 0.87781

b
0
=
6
4 . 344
) 878 . 0 (
6
3 . 221
1
=

n
x
b
n
y
= 13.503

y = 13.503 + 0.878 x

Firm Births (x) Bankruptcies (y)
58.1 34.3
55.4 35
57 38.5
58.5 40.1
57.4 35.5
58 37.9

prohibited.
The slope of the line, b
1
= 0.878, means that for every 10,000 increase of
firm births, the number of business bankruptcies is predicted to increase by
878.

12.12 Steel (x) Orders (y)
90.6 2.74
88.8 2.87
89.7 2.93
79.7 2.87
84.3 2.98
88.8 3.09
91.3 3.36
95.2 3.61
95.5 3.75
98.5 3.95

Ex = 902.4 Ey = 32.15 Ex
2
= 81,705.14

Ey
2
= 104.9815 Exy = 2917.906 n = 10

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
10
) 15 . 32 (
9815 . 104
10
) 4 . 902 (
14 . 705 , 81
10
) 15 . 32 )( 4 . 902 (
906 . 2917
2 2

r =
) 61925 . 1 )( 564 . 272 (
69 . 16
= 0.794

r = 0.794 represents a relatively strong positive linear relationship between the
raw steel production and the annual new orders. .


prohibited.
b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
10
) 4 . 902 (
14 . 705 , 81
10
) 15 . 32 )( 4 . 902 (
906 . 2917
2
= 0.061233

b
0
=
10
4 . 902
) 061233 . 0 (
10
15 . 32
1
=

n
x
b
n
y
= 2.3107

y
=
2.3107 + 0.06123 x

12.13 x y
15 47
8 36
19 56
12 44
5 21

y = 13.625 + 2.303 x

Residuals:

0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
0 20 40 60 80 100 120
Raw Steel Production
N
e
w

O
r
d
e
r
s

prohibited.
x y y Residuals (y- y )
15 47 48.1694 -1.1694
8 36 32.0489 3.9511
19 56 57.3811 -1.3811
12 44 41.2606 2.7394
5 21 25.1401 -4.1401

12.14 x y Predicted ( y ) Residuals (y- y )
12 17 18.4582 -1.4582
21 15 19.9196 -4.9196
28 22 21.0563 0.9437
8 19 17.8087 1.1913
20 24 19.7572 4.2428

y = 16.510 + 0.162 x

140 25 18.6597 6.3403
119 29 37.5229 -8.5229
103 46 51.8948 -5.8948
91 70 62.6737 7.3263
65 88 86.0280 1.9720
29 112 118.3648 -6.3648
24 128 122.8561 5.1439

y = 144.414 0.898 x

12.5 148 144.2053 3.7947
3.7 55 10.0953 44.9047
21.6 338 282.8873 55.1127
60.0 994 868.0945 125.9055
37.6 541 526.7236 14.2764
6.1 89 46.6708 42.3292
16.8 126 209.7364 -83.7364
41.2 379 581.5868 -202.5868

y = 46.292 + 15.240x

prohibited.
16 5 4.0259 0.9741
6 12 11.1722 0.8278
8 9 9.7429 -0.7429
4 15 12.6014 2.3986
7 7 10.4575 -3.4575

y = 15.460 0.715 x

12.18 _ x_ _ y_ Predicted ( y ) Residuals (y- y )
58.1 34.3 37.4978 -3.1978
55.4 35.0 35.1277 -0.1277
57.0 38.5 36.5322 1.9678
58.5 40.1 37.8489 2.2511
57.4 35.5 36.8833 -1.3833
58.0 37.9 37.4100 0.4900

y = 13.503 + 0.878 x

The residual for x = 58.1 is relatively large, but the residual for x = 55.4 is quite
small.

12.19 _x_ _ y_ Predicted ( y ) Residuals (y- y )
5 47 42.2756 4.7244
7 38 38.9836 -0.9836
11 32 32.3996 -0.3996
12 24 30.7537 -6.7537
19 22 19.2317 2.7683
25 10 9.3558 0.6442

y = 50.506 - 1.646 x


prohibited.
No apparent violation of assumptions

12.20 Distance (x) Cost y ( y ) (y- y )
1,245 2.64 2.5376 .1024
425 2.31 2.3322 -.0222
1,346 2.45 2.5629 -.1128
973 2.52 2.4694 .0506
255 2.19 2.2896 -.0996
865 2.55 2.4424 .1076
1,080 2.40 2.4962 -.0962
296 2.37 2.2998 .0702

y = 2.2257 0.00025 x

No apparent violation of assumptions

12.21

Error terms appear to be nonindependent


prohibited.

12.22

There appears to be nonlinear regression

12.23 The Residuals vs. Fits graphic is strongly indicative of a violation of the
homoscedasticity assumption of regression. Because the residuals are very close
together for small values of x, there is little variability in the residuals at the left
end of the graph. On the other hand, for larger values of x, the graph flares out
indicating a much greater variability at the upper end. Thus, there is a lack of
homogeneity of error across the values of the independent variable.

12.24 SSE = Ey
2
b
0
Ey b
1
Exy = 1,935 (16.50965)(97) 0.162379(1,767) =
46.6403

3
6403 . 46
2
SSE
=
=
n
s
e
= 3.94

Approximately 68% of the residuals should fall within 1s
e
.
3 out of 5 or 60% of the actual residuals fell within 1s
e
.

12.25 SSE = Ey
2
b
0
Ey b
1
Exy = 45,154 144.414(498) (.89824)(30,099) =

SSE = 272.153

5
153 . 272
2
SSE
=
=
n
s
e
= 7.38

6 out of 7 = 85.7% fall within + 1s
e


prohibited.
7 out of 7 = 100% fall within + 2s
e

12.26 SSE = Ey
2
b
0
Ey b
1
Exy = 1,587,328 (46.29176)(2,670)
15.23977(107,610.4) =

SSE = 70,969.254

6
254 . 969 , 70
2
SSE
=
=
n
s
e
= 108.8

Six out of eight (75%) of the sales estimates are within $108.8 million.

12.27 SSE = Ey
2
b
0
Ey b
1
Exy = 524 15.4599(48) (0.71462)(333) = 19.89326

3
89326 . 19
2
SSE
=
=
n
s
e
= 2.575

Four out of five (80%) of the estimates are within 2.575 of the actual rate for
bonds. This amount of error is probably not acceptable to financial analysts.

12.28 _ x_ _ y_ Predicted ( y ) Residuals (y y )
2
) ( y y
58.1 34.3 37.4978 -3.1978 10.2259
55.4 35.0 35.1277 -0.1277 0.0163
57.0 38.5 36.5322 1.9678 3.8722
58.5 40.1 37.8489 2.2511 5.0675
57.4 35.5 36.8833 -1.3833 1.9135
58.0 37.9 37.4100 0.4900 0.2401

2
) ( y y = 21.3355

SSE =
2
) (
y y = 21.3355

4
3355 . 21
2
SSE
=
=
n
s
e
= 2.3095


prohibited.
The standard error of the estimate indicates that the regression model is with +
2.3095(1,000) bankruptcies about 68% of the time. In this particular problem, 5/6
or 83.3% of the residuals are within this standard error of the estimate.

12.29 (y y ) (y y )
2

4.7244 22.3200
-0.9836 .9675
-0.3996 .1597
-6.7537 45.6125
2.7683 7.6635
0.6442 .4150
E(y- y )
2
= 77.1382

SSE =
2
) (
y y = 77.1382

4
1382 . 77
2
SSE
=
=
n
s
e
= 4.391

12.30 (y- y ) (y- y )
2

.1024 .0105
-.0222 .0005
-.1128 .0127
.0506 .0026
-.0996 .0099
.1076 .0116
-.0962 .0093
.0702 .0049
E(y y )
2
= .0620 SSE =
2
) (
y y = .0620

6
0620 .
2
SSE
=
=
n
s
e
= .102
The model produces estimates that are .102 or within about 10 cents 68% of the
time. However, the range of milk costs is only 45 cents for this data.

12.31 Volume (x) Sales (y)
728.6 10.5
497.9 48.1
439.1 64.8
377.9 20.1
375.5 11.4

prohibited.
363.8 123.8
276.3 89.0

n = 7 Ex = 3059.1 Ey = 367.7
Ex
2
= 1,464,071.97 Ey
2
= 30,404.31 Exy = 141,558.6

b
1
= .1504 b
0
= 118.257

y = 118.257 .1504x

SSE = Ey
2
b
0
Ey b
1
Exy

= 30,404.31 (118.257)(367.7) (0.1504)(141,558.6) = 8211.6245

5
6245 . 8211
2
SSE
=
=
n
s
e
= 40.53

This is a relatively large standard error of the estimate given the sales values
(ranging from 10.5 to 123.8).

12.32 r
2
=
5
) 97 (
935 , 1
6403 . 46
1
) (
SSE
1
2 2
2

=

n
y
y
= .123

This is a low value of r
2
.

12.33 r
2
=
7
) 498 (
154 , 45
153 . 272
1
) (
SSE
1
2 2
2

=

n
y
y
= .972

This is a high value of r
2
.

12.34 r
2
=
8
) 670 , 2 (
328 , 587 , 1
254 . 969 , 70
1
) (
SSE
1
2 2
2

=

n
y
y
= .898

This value of r
2
is relatively high.


prohibited.

12.35 r
2
=
5
) 48 (
524
89326 . 19
1
) (
SSE
1
2 2
2

=

n
y
y
= .685

This value of r
2
is a modest value.
68.5% of the variation of y is accounted for by x but 31.5% is unaccounted for.

12.36 r
2
=
6
) 3 . 221 (
41 . 188 , 8
3355 . 21
1
) (
SSE
1
2 2
2

=

n
y
y
= .183

This value is a low value of r
2
.
Only 18.3% of the variability of y is accounted for by the x values and 81.7% are
unaccounted for.

12.37
GDP Growth (x)
Long-term
Interest Rates (y)
5.53 5.54
5.23 5.93
1.78 5.48
2.92 5.30
1.88 4.80
3.12 4.58
3.02 4.07
2.82 4.21
2.20 4.27
0.69 3.60
-2.77 3.23
3.21 3.24
2.46 2.79

Ex = 32.09 Ey = 57.04 Ex
2
= 129.3149

prohibited.

Ey
2
= 262.1898 Exy = 154.5524 n = 13

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
=
13
) 09 . 32 (
3149 . 129
13
) 04 . 57 )( 09 . 32 (
5524 . 154
2
= 0.27447

b
0
=
13
09 . 32
) 27447 . 0 (
13
04 . 57
1
=

n
x
b
n
y
= 3.7102

y
= 3.7102 + 0.27447 x or
Long-term Interest Rates = 3.7102 + 0.27447 (Real GDP Growth)

( ) ( )
13999 . 8
5524 . 154 27447 . 0 04 . 57 7102 . 3 1898 . 262 SSE
1 0
2
=
= = =

xy b y b y

Standard Error of the Estimate: s
e
= 0.8602 =
=
2 13
13999 . 8
2
SSE
n

( )
0.317 =

13
04 . 57
1898 . 262
13999 . 8
1
) (
SSE
1
2 2
2
2
n
y
y
r

Real GDP Growth is not a very good predictor of the Long-term Interest Rates because only
31.7% of the variation in Long-term Interest Rates can be explained by the variation in Real
GDP Growth.

12.38 s
b
=
5
) 89 (
833 , 1
94 . 3
) (
2 2
2

=

n
x
x
s
e
= .2498

b
1
= 0.162

H
o
: |
1
= 0 o = .05
H
a
: |
1
= 0

prohibited.

This is a two-tail test, o/2 = .025 df = n 2 = 5 2 = 3

t
.025,3
= 3.182

t =
2498 .
0 162 . 0
1 1

=
b
s
b |
= 0.65

Since the observed t = 0.65 < t
.025,3
= 3.182 and t = 0.65 > t
.025,3
= 3.182, the
decision is to fail to reject the
null hypothesis.

12.39 s
b
=
7
) 571 (
293 , 58
38 . 7
) (
2 2
2

=

n
x
x
s
e
= .06812

b
1
= 0.898

H
o
: |
1
= 0 o = .01
H
a
: |
1
= 0

Two-tail test, o/2 = .005 df = n 2 = 7 2 = 5

t
.005,5
= 4.032

t =
0682 .
0 898 . 0
1 1

=
b
s
b |
= 13.17

.005,5
= 4.032, the decision is to reject the null
hypothesis.

12.40 s
b
=
8
) 5 . 199 (
15 . 667 , 7
8 . 108
) (
2 2
2

=

n
x
x
s
e
= 2.097

b
1
= 15.240

H
o
: |
1
= 0 o = .10
H
a
: |
1
= 0

prohibited.

For a two-tail test, o/2 = .05 df = n 2 = 8 2 = 6

t
.05,6
= + 1.943

t =
097 . 2
0 240 . 15
1 1

=
b
s
b |
= 7.27

Since the observed t = 7.27 > t
.05,6
hypothesis.

12.41 s
b
=
5
) 41 (
421
575 . 2
) (
2 2
2

=

n
x
x
s
e
= .2796

b
1
= 0.715

H
o
: |
1
= 0 o = .05
H
a
: |
1
= 0


t
.025,3
= 3.182

t =
2796 .
0 715 . 0
1 1

=
b
s
b |
= 2.56

.025,3
= 3.182 and t = 2.56 < t
.025,3
= 3.182, the
null hypothesis.


prohibited.
12.42 s
b
=
6
) 4 . 344 (
78 . 774 , 19
3095 . 2
) (
2 2
2

=

n
x
x
s
e
= 0.9260

b
1
= 0.878

H
o
: |
1
= 0 o = .05
H
a
: |
1
= 0


t
.025,4
= 2.776

t =
9260 .
0 878 . 0
1 1

=
b
s
b |
= 0.948

.025,4
= 2.776 and t = 0.948 > t
.025,4
= 2.776, the
null hypothesis.

12.43 F = 8.26 with a p-value of .021. The overall model is significant at o = .05 but
not at o = .01. For simple regression,

t = F = 2.874

If o = .05, then t
cr
= t
.025,8
= 2.306 and t =2.874 >2.306. For o = .01 t
cr
= t
.005,8
=
3.355 and t =.2.874 does not fall into rejection region. Thus, the slope is significant at o = .05
but not at
o = .01.

12.44 x
0
= 25
95% confidence o/2 = .025
df = n 2 = 5 2 = 3 t
.025,3
= 3.182

5
89
= =

n
x
x = 17.8

Ex = 89 Ex
2
= 1,833


prohibited.
s
e
= 3.94

y = 16.50965 + 0.162379(25) = 20.57

y t
o/2,n-2
s
e
+
n
x
x
x x
n
2
2
2
0
) (
) ( 1

20.57 3.182(3.94)
5
) 89 (
833 , 1
) 8 . 17 25 (
5
1
2
2
+ = 20.57 3.182(3.94)(.63903) =

20.57 8.01

12.56 < E(y
25
) < 28.58

12.45 x
0
= 100 For 90% confidence, o/2 = .05
df = n 2 = 7 2 = 5 t
.05,5
= 2.015

7
571
= =

n
x
x = 81.57143

Ex= 571 Ex
2
= 58,293 s
e
= 7.38

y = 144.414 .898(100) = 54.614

y t
o /2,n-2
s
e
+ +
n
x
x
x x
n
2
2
2
0
) (
) ( 1
1
=

54.614 2.015(7.38)
7
) 571 (
293 , 58
) 57143 . 81 100 (
7
1
1
2
2
+ + =

54.614 2.015(7.38)(1.08252) = 54.614 16.098

38.516 < y < 70.712

For x
0
= 130, y = 144.414 0.898(130) = 27.674


prohibited.
y t
/2,n-2
s
e

+ +
n
x
x
x x
n
2
2
2
0
) (
) ( 1
1
=

27.674 2.015(7.38)
7
) 571 (
293 , 58
) 57143 . 81 130 (
7
1
1
2
2
+ + =

27.674 2.015(7.38)(1.1589) = 27.674 17.234

10.440 < y < 44.908

The confidence interval of y for x
0
= 130 is wider than the confidence interval of y
for x
0
= 100, because x
0
= 100 is nearer to the value of x = 81.57 than is x
0
= 130.

12.46 x
0
= 20 For 98% confidence, o/2 = .01
df = n 2 = 8 2 = 6 t
.01,6
= + 3.143

8
5 . 199
= =

n
x
x = 24.9375

Ex = 199.5 Ex
2
= 7,667.15 s
e
= 108.8

y = 46.29 + 15.24(20) = 258.51

y t
o /2,n-2
s
e
+
n
x
x
x x
n
2
2
2
0
) (
) ( 1

258.51 (3.143)(108.8)
8
) 5 . 199 (
15 . 667 , 7
) 9375 . 24 20 (
8
1
2
2
+

258.51 (3.143)(108.8)(0.36614) = 258.51 125.20

133.31 < E(y
20
) < 383.71

For single y value:


prohibited.
y t
/2,n-2
s
e
+ +
n
x
x
x x
n
2
2
2
0
) (
) ( 1
1

258.51 (3.143)(108.8)
8
) 5 . 199 (
15 . 667 , 7
) 9375 . 24 20 (
8
1
1
2
2
+ +

258.51 (3.143)(108.8)(1.06492) = 258.51 364.16

105.65 < y < 622.67

The prediction interval for the single value of y is wider than the confidence
interval for the average value of y because the average is more towards the
middle and individual values of y can vary more than values of the average.

12.47 x
0
= 10 For 99% confidence o/2 = .005
df = n 2 = 5 2 = 3 t
.005,3
= + 5.841

5
41
= =

n
x
x = 8.20

Ex = 41 Ex
2
= 421 s
e
= 2.575

y = 15.46 0.715(10) = 8.31

y t
o /2,n-2
s
e
+
n
x
x
x x
n
2
2
2
0
) (
) ( 1

8.31 5.841(2.575)
5
) 41 (
421
) 2 . 8 10 (
5
1
2
2
+ =

8.31 5.841(2.575)(.488065) = 8.31 7.34

0.97 < E(y
10
) < 15.65

If the prime interest rate is 10%, we are 99% confident that the average bond rate
is between 0.97% and 15.65%.


prohibited.

12.49
Time Period
Recoded Time Period
(x)
Long-Term
Interest Rate (y)
Nov-12 1 1.730
Dec-12 2 1.775
Jan-13 3 1.906
Feb-13 4 1.975
Mar-13 5 1.845
Apr-13 6 1.765
May-13 7 1.888

Ex = 28 Ey = 12.884 Exy = 51.929
Ex
2
= 140 Ey
2
= 23.760780 n = 7

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
= 014036 . 0
7
) 28 (
140
7
) 884 . 12 )( 28 (
929 . 51
2
=

b
0
= 78443 . 1
7
28
) 014036 . 0 (
7
884 . 12
1
= =

n
x
b
n
y

y = 1.78443 + 0.014036 x or
Long-term Interest Rate = 1.78443 + 0.014036 (Recoded Time Period)

Since June 2013 can be coded as 8, we forecast the long-term interest rate for
June 2013 as:

y (8) = 1.78443 + 0.014036 (8) = 1.897


prohibited.
12.50
Time
Period
Recoded Time
Period (x)
New Housing
Prices Index (y)
1994 1 102.4
1995 2 101.2
1996 3 99.3
1997 4 100.0
1998 5 101.0
1999 6 101.8
2000 7 104.1
2001 8 107.0
2002 9 111.3
2003 10 116.7
2004 11 123.2
2005 12 129.4
2006 13 142.0
2007 14 153.0
2008 15 158.2
2009 16 154.6

Ex = 136 Ey = 1,905.2 Exy = 17,614.5
Ex
2
= 1,496 Ey
2
= 233,868.30 n = 16

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
= 17735 . 4
16
) 136 (
496 , 1
16
) 2 . 905 , 1 )( 136 (
5 . 614 , 17
2
=

b
0
= 5675 . 83
16
136
) 17735 . 4 (
16
2 . 905 , 1
1
= =

n
x
b
n
y

y = 83.5675 + 4.17735 x or
New Housing prices Index = 83.5675 + 4.17735(Recoded Time Period)

Since 2010 can be coded as 17, we forecast new housing prices index for 2010 as:
y (17) = 83.5675 + 4.17735 (17) = 154.6

12.51 Ex = 36 Ex
2
= 256
Ey = 44 Ey
2
= 300
Exy = 188 n = 7


prohibited.
r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=
(
7
) 44 (
300
7
) 36 (
256
7
) 44 )( 36 (
188
2 2

r =
) 42857 . 23 )( 85714 . 70 (
2857 . 38
=
7441 . 40
2857 . 38
= .940

12.52 x y
5 8
7 9
3 11
16 27
12 15
9 13

Ex = 52 Ex
2
= 564
Ey = 83 Ey
2
= 1,389 b
1
= 1.2853
Exy = 865 n = 6 b
0
= 2.6941

a) y = 2.6941 + 1.2853 x

b) y (Predicted Values) (y- y ) residuals
9.1206 -1.1206
11.6912 -2.6912
6.5500 4.4500
23.2588 3.7412
18.1177 -3.1177
14.2618 -1.2618

c) (y- y )
2

1.2557
7.2426
19.8025
13.9966
9.7201
1.5921

prohibited.
SSE = 53.6096

4
6096 . 53
2
SSE
=
=
n
s
e
= 3.661

d) r
2
=
6
) 83 (
389 , 1
6096 . 53
1
) (
SSE
1
2 2
2

=

n
y
y
= .777

e) H
o
: |
1
= 0 o = .01
H
a
: |
1
= 0
Two-tailed test, o/2 = .005 df = n 2 = 6 2 = 4

t
.005,4
= 4.604

s
b
=
6
) 52 (
564
661 . 3
) (
2 2
2

=

n
x
x
s
e
= .34389

t =
34389 .
0 2853 . 1
1 1

=
b
s
b |
= 3.74

.005,4
= 4.604 and t = 3.74 > t
.005,4
= 4.604
, the decision is to fail to reject
the null hypothesis.

f) The r
2
= 77.7% is modest. There appears to be some prediction with this
model. The slope of the regression line is not significantly different from
zero using o = .01. However, for o = .05, the null hypothesis of a zero
slope is rejected. The standard error of the estimate, s
e
= 3.661 is not
particularly small given the range of values for y (27 8 = 19).

12.53 x y
53 5
47 5
41 7
50 4
58 10
62 12
45 3
60 11


prohibited.
Ex = 416 Ex
2
= 22,032
Ey = 57 Ey
2
= 489 b
1
= 0.355
Exy = 3,106 n = 8 b
0
= 11.335

a) y = 11.335 + 0.355 x

b) y (Predicted Values) (y- y ) residuals
7.48 -2.48
5.35 -0.35
3.22 3.78
6.415 -2.415
9.255 0.745
10.675 1.325
4.64 -1.64
9.965 1.035

c) (y- y )
2

6.1504
0.1225
14.2884
5.8322
0.5550
1.7556
2.6896
1.0712
SSE = 32.4649

d) s
e
=
6
4649 . 32
2
SSE
=
n
= 2.3261

e) r
2
=
8
) 57 (
489
4649 . 32
1
) (
SSE
1
2 2
2

=

n
y
y
= .608

f) H
o
: |
1
= 0 o = .05
H
a
: |
1
= 0

Two-tailed test, o/2 = .025 df = n 2 = 8 2 = 6

t
.025,6
= 2.447


prohibited.
s
b
=
8
) 416 (
032 , 22
3261 . 2
) (
2 2
2

=

n
x
x
s
e
= 0.116305

t =
116305 .
0 355 . 0
1 1

=
b
s
b |
= 3.05

.025,6
= 2.447, the decision is to reject the
null hypothesis.

The population slope is different from zero.

g) This model produces only a modest r
2
= .608. Almost 40% of the
variance of y is unaccounted for by x. The range of y values is 12 3 = 9
and the standard error of the estimate is 2.33. Given this small range, the
s
e
is not small.

12.54 Ex = 1,263 Ex
2
= 268,295
Ey = 417 Ey
2
= 29,135
Exy = 88,288 n = 6

b
0
= 25.42778 b
1
= 0.209369

SSE = Ey
2
- b
0
Ey - b
1
Exy =

29,135 (25.42778)(417) (0.209369)(88,288) = 46.845468

r
2
=
5 . 153
845468 . 46
1
) (
SSE
1
2
2
=

n
y
y
= .695

Coefficient of determination = r
2
= .695

12.55 a) x
0
= 60
Ex = 524 Ex
2
= 36,224
Ey = 215 Ey
2
= 6,411 b
1
= .5481
Exy = 15,125 n = 8 b
0
= 9.026

s
e
= 3.201 95% Confidence Interval o/2 = .025
df = n 2 = 8 2 = 6

t.
025,6
= 2.447


prohibited.
y = 9.026 + 0.5481(60) = 23.86

8
524
= =

n
x
x = 65.5

y t
o /2,n-2
s
e
+
n
x
x
x x
n
2
2
2
0
) (
) ( 1

23.86 + 2.447(3.201)
8
) 524 (
224 , 36
) 5 . 65 60 (
8
1
2
2
+

23.86 + 2.447(3.201)(.375372) = 23.86 + 2.94

20.92 < E(y
60
) < 26.8

b) x
0
= 70

y = 9.026 + 0.5481(70) = 29.341

y + t
o/2,n-2
s
e

+ +
n
x
x
x x
n
2
2
2
0
) (
) ( 1
1

29.341 + 2.447(3.201)
8
) 524 (
224 , 36
) 5 . 65 70 (
8
1
1
2
2
+ +

29.341 + 2.447(3.201)(1.06567) = 29.341 + 8.347

20.994 < y < 37.688

c) The confidence interval for (b) is much wider because part (b) is for a single value
of y which produces a much greater possible variation. In actuality, x
0
= 70 in
part (b) is slightly closer to the mean (x) than x
0
= 60. However, the width of the
single interval is much greater than that of the average or expected y value in part
(a).


prohibited.
12.56 Year Cost
1 56
2 54
3 49
4 46
5 45

Ex = 15 Ey = 250 Exy = 720
Ex
2
= 55 Ey
2
= 12,594 n = 5

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
5
) 15 (
55
5
) 250 )( 15 (
720
2
= 3

b
0
=
5
15
) 3 (
5
250
1
=

n
x
b
n
y
= 59

y = 59 3 x

y (7) = 59 3(7) = 38 ($ millions)

12.57 Ey = 267 Ey
2
= 15,971
Ex = 21 Ex
2
= 101
Exy = 1,256 n = 5

b
0
= 9.234375 b
1
= 10.515625

SSE = Ey
2
b
0
Ey b
1
Exy =

15,971 (9.234375)(267) (10.515625)(1,256) = 297.7969

r
2
=
2 . 713 , 1
7969 . 297
1
) (
SSE
1
2
2
=

n
y
y
= .826

If a regression model would have been developed to predict number of cars sold
by the number of sales people, the model would have had an r
2
of 82.6%. This
result means that 82.6% of the variation in the number of cars sold is explained by
variation in the number of salespeople.


prohibited.

12.58 Let Percentage Purchases to be Made from Catalogues = x and Average Spending = y.

Ex = 468 Ex
2
= 20,404
Ey = 8,731 Ey
2
= 7,423,101
Exy = 379,186 n = 11

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
= 15.67122
b
0
= 98819 . 126
1
=

n
x
b
n
y

y = 126.98819 + 15.67122 x or
Average Spending = 126.98819 + 15.67122 (Percentage Purchases to be Made
from Catalogues)

b
0
= 126.98819 b
1
= 15.67122

SSE = Ey
2
- b
0
Ey - b
1
Exy =

7,423,101 (126.98819)( 8,731) (15.67122)( 379,186) = 372,059.8862

r
2
= 0.2454 = =

1818 . 068 , 493
62 372,059.88
1
) (
SSE
1
2
2
n
y
y

Coefficient of determination = r
2
= 0.2454

This regression model accounts for only 24.54% of the variation in the average
amounts of planned spending on gifts. It also means that 75.46% of the variability of
the spending is unexplained by the regression model.

12.59 Sales(y) Number of Units(x)

17.1 12.4
7.9 7.5
4.8 6.8
4.7 8.7

prohibited.
4.6 4.6
4.0 5.1
2.9 11.2
2.7 5.1
2.7 2.9

Ey = 51.4 Ey
2
= 460.1 Ex = 64.3
Ex
2
= 538.97 Exy = 440.46 n = 9

b
1
= 0.92025 b
0
= 0.863565

y = 0.863565 + 0.92025 x

SSE = Ey
2
b
0
Ey b
1
Exy =

460.1 (0.863565)(51.4) (0.92025)(440.46) = 99.153926

r
2
=
55 . 166
153926 . 99
1
) (
SSE
1
2
2
=

n
y
y
= .405
Thus, 40.5% of the variation of the restaurant chains sales is explained by
variation in the number of of units, and 59.5% of the variation in restaurant chains sales is
due to other factors.
r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
9
) 4 . 51 (
1 . 460
9
) 3 . 64 (
97 . 538
9
) 4 . 51 )( 3 . 64 (
46 . 440
2 2

r =
) 54889 . 166 )( 58222 . 79 (
23556 . 73
= 0.636

r = = 0.636 represents moderate positive correlation between, the restaurant
chains sales and its number of units.


prohibited.
12.61 x y
2.4 6.7
3.9 7.0
1.1 7.8
2.8 7.9
2.4 7.2
1.6 6.9
2.8 6.1
2.2 6.0
2.2 6.1
0.1 8.4

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (
=

r =
(
10
) 1 . 70 (
57 . 497
10
) 5 . 21 (
87 . 55
10
) 1 . 70 )( 5 . 21 (
94 . 146
2 2

r =
( )
) 169 . 6 )( 645 . 9 (
775 . 3
= .489

The r value of .489 denotes a moderate negative correlation.

12.62 Let Nondurables = x and Durables = y.
Ex = 3,145,184 Ey = 1,589,747
Ex
2
= 622,564,606,966 Ey
2
= 164,805,815,045
Exy = 317,918,692,388 n = 16

r =
(
(
(
(

n
y
y
n
x
x
n
y x
xy
2
2
2
2
) ( ) (


prohibited.
r =
(
16
) 747 , 589 , 1 (
5,045 164,805,81
16
) 184 , 145 , 3 (
6,966 622,564,60
16
) 747 , 589 , 1 )( 184 , 145 , 3 (
2,388 317,918,69
2 2

r = 0.9975

The r value of 0.9975 denotes a strong positive correlation.
b
1
= 1.258542 b
0
= 148,037.3757

y = 148,037.3757+ 1.258542 x or
Durables = 148,037.3757+ 1.258542 (Non-Durables)
y (200,000) = 148,037.3757+ 1.258542 (200,000) = 103,671.0243
Thus, the predicted amount for durables shipment is $103,671 million.

y + t
o/2,n-2
s
e
+
n
x
x
x x
n
2
2
2
0
) (
) ( 1

o = .05, t
.025,14
= + 2.145

x
0
= 200,000, n = 16

x = 196,574

SSE = Ey
2
b
0
Ey b
1
Exy =

164,805,815,045 (148,037.3757)( 1,589,747) (1.258542)( 317,918,692,388) =

= 33,761,996.57

14
.57 33,761,996
2
SSE
=
=
n
s
e
= 1552.92

Confidence Interval =
103,671+ (2.145)( 1552.92)
16
) 3,145,184 (
6,966 622,564,60
) 574 , 196 000 , 200 (
16
1
2
2
+ =
103,671+ 851


prohibited.
102,820 to 104,522

H
0
: |
1
= 0
H
a
: |
1
= 0

o = .05 df = 14 Table t
.025,14
= + 2.145

t =
023673 .
258542 . 1
5 65,598.836
1552.92
0 1.258542 0
1
=
|
.
|
\
|

=
b
s
b
= 53.16

.025,14
hypothesis that the population slope is zero. The linear regression model adds
something to the explanation of the variation of the shipments of durables that the
average value of y model does not.

12.63 Ex = 10.797 Ex
2
= 20.673549
Ey = 516.8 Ey
2
= 61,899.06 b
1
= 73.15543
Exy = 1091.2081 n = 7 b
0
= 39.00846

y = 39.00846+ 73.15543 x or

Cost = 39.00846+ 73.15543 Mass

SSE = Ey
2
b
0
Ey b
1
Exy

SSE = 61,899.06 (39.00846)(516.8) (73.15543)( 1091.2081) = 2,230.83435

5
83435 . 230 , 2
2
SSE
=
=
n
s
e
= 21.12266

r
2
=
7
) 8 . 516 (
06 . 899 , 61
83435 . 230 , 2
1
) (
SSE
1
2 2
2

=

n
y
y
= 1 .09395 = .90605

12.64 Let trade balance with the rest of the world = x and trade balance with the U.S. =
y .
Ex = 542,911 Ey = 858,326 Ex
2
= 31,262,604,453

Ey
2
= 77,988,664,304 n = 10 Exy = 49,065,104,049


prohibited.
b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
10
) 911 , 542 (
453 , 604 , 262 , 31
10
) 326 , 858 )( 911 , 542 (
049 , 104 , 065 , 49
2

b
1
= 1.379481

b
0
=
10
911 , 542
) 379481 . 1 (
10
326 , 858
1
=

n
x
b
n
y
= 10,939.059081

y = 10,939 + 1.3795 x

r
2
for this model is 0.78801183 . There is predictability in this model.

Test for slope: t = 5.45 with a p-value of 0.0006. The null hypothesis that the
population slope is zero is rejected.

Time-Series Trend Line: (x = recoded years of 1 through 10, y = trade balance
with the rest of the world)

Ex = 55 Ey = 542,911 Exy = 3,102,042
Ex
2
= 385 Ey
2
= 31,262,604,453 n = 10

b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
10
) 55 (
385
10
) 911 , 542 )( 55 (
042 , 102 , 3
2
= 1406.442424

b
0
=
10
55
) 442424 . 1406 (
10
911 , 542
1
=

n
x
b
n
y
= 46,555.666667

y = 46555.666667+ 1406.442424 x

y (2008) = y (11) = 46,555.666667 + 1406.442424 (11) = 62,026.5 ($ millions)

12.65 Ex = 1034.7 Ey = 18,840
Ex
2
= 217,604.49 Ey
2
= 62,486,228
Exy = 2,356,711.6 n = 7


prohibited.
b
1
=
=
n
x
x
n
y x
xy
SS
SS
xx
xy
2
2
) (
=
7
) 7 . 1034 (
49 . 604 , 217
7
) 840 , 18 )( 7 . 1034 (
6 . 711 , 356 , 2
2
= 6.620826

b
0
=
7
7 . 1034
) 620826 . 6 (
7
840 , 18
1
=

n
x
b
n
y
= 3670.081237

y = 3670.081237 6.620826 x

SSE = Ey
2
b
0
Ey b
1
Exy

= 62,486,228 (3670.081237)(18,840) (6.620826)(2,356,711.6)

SSE = 8,945,274.9307

5
9307 . 274 , 945 , 8
2
SSE
=
=
n
s
e
= 1337.5556

r
2
=
7
) 840 , 18 (
228 , 486 , 62
9307 . 274 , 945 , 8
1
) (
SSE
1
2 2
2

=

n
y
y
= 1 .7594 = .2406

The r value of 0.4905 denotes a moderate negative correlation.

H
0
: |
1
= 0
H
a
: |
1
= 0 o = .05 t
.025,5
= + 2.571

SS
xx
=
( )
7
) 7 . 1034 (
49 . 604 , 217
2
2
2
=

n
x
x = 64,661.048571

t =
048571 . 661 , 64
5556 . 1337
0 620826 . 6 0
1

=
xx
e
SS
s
b
= 1.26

.025,5
= 2.571 and t = 1.26 < t
.025,5
= 2.571, the
decision is to fail to reject the null hypothesis.

12.66 Let Water Use = y and Temperature = x

prohibited.

Ex = 196 Ex
2
= 5,834
Ey = 3,880 Ey
2
= 2,188,612 b
1
= 16.42054
Exy = 112,006 n = 8 b
0
= 82.69671

y = 82.69671 + 16.42054 x or

Water Use = 82.69671 + 16.42054 Temperature

For x = 38
o
C: y = 82.69671 + 16.42054 (38) = 707 (millions of litres)

SSE = Ey
2
b
0
Ey b
1
Exy

SSE = 2,188,612 (82.69671)( 3,880) (16.42054)( 112,006) = 28,549.76196

6
76196 . 549 , 28
2
SSE
=
=
n
s
e
= 68.980386

r
2
=
8
) 880 , 3 (
612 , 188 , 2
76196 . 549 , 28
1
) (
SSE
1
2 2
2

=

n
y
y
= 1 .093053 = .9069

About 91% of the variation in the water usage can be explained by the
variation in the temperatures, but 9% of the variation in the water usage is
due to other factors.

Testing the slope:

H
o
: |
1
= 0
H
a
: |
1
= 0 o = .01

Since this is a two-tailed test, o/2 = .005
df = n 2 = 8 2 = 6

t
.005,6
= 3.707

s
b
=
8
) 196 (
834 , 5
980386 . 68
) (
2 2
2

=

n
x
x
s
e
= 2.147266


prohibited.
t =
147266 . 2
0 42054 . 16
1 1

=
b
s
b |
= 7.65

.005,6
hypothesis.

12.67 The F value for overall significance of the model is 7.12 with an associated p-
value of .0205 which is significant at o = .05. It is not significant at alpha of .01.
The t statistic for testing to determine if the slope is significantly different from
zero is 2.67 with a p value of 0.0205. Both statistics state that there are
significant regression effects in the model at o = .05, but not at alpha of 0.01. The
coefficient of determination is .372 with an adjusted r
2
of .32. This represents the
modest predictability. The standard error of the estimate is 982.219 which in
units of 1,000 labourers means that about 68% of the predictions are within
982,219 of the actual figures. The regression model is:
Number of Union Members = 22,348.97 0.0524 Labour Force. For a labour
force of 100,000 (thousand, actually 100 million), substitute x = 100,000 and get a
predicted value of 17,108.97 (thousand) which is actually 17,108,970 union
members.

12.68 The Residual Diagnostics from output indicate a relatively healthy set of
residuals. The Histogram indicates that the error terms are generally normally
distributed. This is somewhat confirmed by the semi straight line Normal Plot of
Residuals. However, the Residuals vs. Fitted Values graph indicates that there
may be some heteroscedasticity with greater error variance for small x values.


prohibited.

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Copyright 2014 by John Wiley & Sons Canada, Ltd. or related companies. All rights
reserved.

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Sons Canada, Ltd.

(MMXIII xii FI)

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Black, Chakrapani, Castillo: Business Statistics, Second Canadian Edition

Solutions Manual 12-1 Chapter 12

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