1) At the January meeting of the shareholders, the CEO of an international group of

supermarkets states that she believes that there is a 90% chance that the EBIT (earnings
before interest and taxes) of the current year will be more than that of last year (which was
€5 billion) if the upward economic trend continues. However, if the economy stabilizes she
thinks that there is only a 40% chance that last year’s EBIT will be exceeded, and if it starts
on a downward trend, there is a 10% chance of bettering last year’s EBIT.

Clearly, the future developments of the EBIT depend heavily on the state of the economy
during the current year. Suppose that specialists believe that the probabilities of a
continuing upward economic trend, of stabilization, and of downward economic trend are
respectively 0.80, 0.15 and 0.05.

i) Draw a probability tree diagram and combine the above probability information to
calculate the probability that the EBIT of the current year will be more than that of last
year.

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ii) Calculate the probability that this year the economic trend will continue going up if the
EBIT of the current year will be more than that of last year.

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2) The general manager of a large chain of hotels wants information about the profitability of
the chain. She needs this information to prove to her investors that the chain is credit
worthy and that the mean profitability of the hotels in the chain is even larger than it was
five years ago, when it was 10%. To obtain such information, she randomly chooses 12
hotels, measures for each hotel last year’s profitability (as the profit percentage of the gross
annual sales), and obtains the average value 18.2% with accompanying standard deviation
8.1%.

i) What can be concluded about the mean profitability µ of all hotels when compared
with the score obtained five years ago; is it larger than it was five years ago? Assume
that the variable that measures the profitability of hotels is normally distributed. Use a
hypothesis test with significance level 0.05. Clearly state the hypotheses. Also,
determine the p-value. Clearly formulate your conclusions.

H0 :

H1 :

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ii) Construct a 95% confidence interval for the mean µ.

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3) In a completely randomized design, seven experimental units were used for each of the five
levels of the factor.
i) Complete the following ANOVA table.

ii) What hypotheses are implied in this problem?

H0 :

H1 :

iii) At the 0.05 level of significance, can we reject the null hypothesis in part (a)? Explain.

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4) Advertising is important for supermarkets, to stimulate sales and to stress a product’s
distinctive features. The screenshot of the SPSS spreadsheet below shows, for the most recent
7 weeks, the sales and the amounts spent on advertising by a supermarket: the variable ‘Sales’

represents the weekly sales (× € 1000) and ‘Advertising’ the weekly advertising costs (× € 1000).

A linear regression analysis with ‘Sales’ as dependent and ‘Advertising’ as independent variable
leads to the following SPSS output.

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
a
1 .888 .788 .746 3.8081
a. Predictors: (Constant), Advertising

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 269.870 1 269.870 18.609 .008b
Residual 72.510 5 14.502
Total 342.380 6
a. Dependent Variable: Sales
b. Predictors: (Constant), Advertising

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 43.840 9.558 4.587 .006
Advertising 18.173 4.213 .888 4.314 .008
a. Dependent Variable: Sales

Only using the above SPSS output:

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i) Write out the mathematical formula for the regression model.

ii) At 5% significance level, test the hypothesis that advertising has no effect on the sales
based on two different test stastistics. Clearly state the hypotheses and formulate
your conclusion.

H0 :

H1 :

Test statistic 1
• Value test statistic

• Null distribution

• P-value

• Conclusion

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 Test statistic 2
• Value test statistic

• Null distribution

• P-value

• Conclusion

iii) Interpret the estimated slope 18.173

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iv) Give an interpretation of the estimated intercept 43.840.

v) Interpret the value R Square .788

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5) Data were collected on 200 high schools students and are scores on various tests, including
science, math, reading and social studies. The variable female is a dichotomous variable
coded 1 if the student was female and 0 if male. A part of the output of a multiple linear
regression, done in SPSS, is given below:

i) At 5% significance level, test the hypothesis that all slopes are equal to 0 ? Explain
your answer.

Yes.

No.

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ii) At the 5% significance level, does it appear that one particular predictor variable can
be removed from the full model as unnecessary ? Explain your answer.

Yes.

No.

iii) For females, the predicted science score would be (explain your answer)

lower than males with similar scores in math, reading and social sciences.

higher than males with similar scores in math, reading and social sciences.

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