Question 3:

Part a)
Years of work
Salary (in $’000)
Experience
2.5 $1
8.5 84
11 97
11.5 91
20 107

Correlation

Column 1 column 2

Column 1 1

Column 2 0.9115.08 1

Salary ( 1 % $ 000 )

130

100

80

60

40

20

0 0
5 10 15 20 25

Work of Experience
Whereas beta represents the slope of the graph length a can’t change in x.

Hence ,

Beta tells us the change in salary (positive in this case) with a unit change in work experience.

Part a)

For such data where 2 data sets have to be composed , a scatter graph is the recommended to be
compared , a scatted graph is the recommended node by which we can also determine the
relationship among different pairs of values.

Hence we used a scatter chart here represented by a line joining the points mentioned.

For this select the entire range of the data in the table along with the column headings ,
go to the charts in ‘insert’ in excel and select the scatter cahrt along with the customizations you
would like to do.

Part b)

Correlation between the work experience and the annual salary is 0.9115708 i .e , they are
highly correlated in a positive manner.

To find the correlation , go to the data to b

> Data Analyse

> Correlation

> select only the data values on the table for “ Input Range “

> Click Ok

Part c)

∝ = 56.41061 ; β = 2.627692

Alpha represents the y. interrupt on the graph , which is the value of y when x = 0

Hence ,
 Salary lies on the y. axis and work experience lies on the x. axis which means alpha the
approximately salary for a pwesha ( Person with 0 years of work experience)

Where beta represents the slope of the graph with a unit change in x.

Hence ,

Beta tells us the change in salary ( positive in this case) with a unit change in work
experience.

Part d)

The assumptions to the error term are as follows:

 There is a lines relationship between the part of data.

 Variance of error terms are similar across the values of independent variables.
 Multicollinerity is not present.

By looking at the grapg , the linear regression model seems appropriate since the points appears
to be mostly following a linear tasting in movements. A visual of the some would again appear
vendor , which again tell us that the data seems appropriate.

Question XYZ.
Part a)

Formula for spearmen’s rho is given as:

P = 1 - 6∑ d2 / n (n2 – 1) ……………….. (1)

Where

d = tank n = number of weeks

Sales
Range Share return Trank
Week revenue in d = d1 – d2 d2
(d1) for (week + 1) (d2)
week ($M)
1 22 3 5.16% 2 1 1
2 14 7 -2.34 % 5 2 4
3 18 5 26 % 4 1 1
4 25 2 7.5 % 1 1 1
5 30 1 -5.40 % 8 7 49
6 9 8 4.55% 3 5 25
 7 15 6 -3.2690 % 7 -1 -1
8 21 4 -2.2 % 6 -2 4
∑d . = 86 (sum of d2)
2

Substitute

P = 1 – 6 * 86 / 8 * (64 – 1) whereas p = 0.024

P = 1 – 516 / 504

P = 1 – 10.238

P= - 0.0238

= 0.024

Question : The daily Price

The daily prices over a selected period for shares in Aaron’s Adventures and Bradley’s Boats (A
and B) have been recorded

Date A B Return (A)% Return (B)%

12/30/2016 3.963 46.56321
12/29/2016 4.113 47.00238 3.79 0.94
12/28/2016 4.333 47.83733 5.35 1.78
12/27/2016 4.567 48.04992 5.40 0.44
12/26/2016 5.067 49.02335 10.95 2.03

Part b)

Pearson's correlation coefficient

Return Return A - Á (A - Á ¿^2 B - B́ B - B́ ¿^2 (A - Á )*(B

Date A B
(A)% (B)% – B´ ¿ ¿
12/30/201 -0.4456 0.198559 -1.13203 1.281487 0.504432
3.963 46.56321
6
12/29/201 -0.2956 0.087379 -0.69286 0.480052 0.204809
4.113 47.00238 3.79 0.94
6
 12/28/201 -0.0756 0.005715 0.14209 0.02019 -0.204809
4.333 47.83733 5.35 1.78
6 2
12/27/201 0.1584 0.025091 0.35468 0.125799 -0.01074
4.567 48.04992 5.40 0.44
6 2
12/26/201 0.6584 0.433491 1.32811 1.763881 0.056182
5.067 49.02335 10.95 2.03
6 2
0.750235 -3.671411 1.629109

Part c)

Correlation coefficient of 0.98 means these stocks are nearly perfect positive correlation between
the two stocks. It means these both stock move in same direction together. This can be easily
visible in the graph presented under sub part of answer a).

Part d)

For simulating data , we can keep correlation coefficient constant. Process to stimulate data will
involve stock prices of both stocks from random dates and from more time spread like monthly
or quarterly data.