A Review of Chapters 15 and 16

Answers to Section Six Exercises

A Review of Chapters 15 and 16
1. a. 106.1, found by (157/148)100.
b. 100.0, found by (157/157)100.
c. 147.3 + 4.9t and 186.5, found by 147.3 + 4.9(8).

2. a. 104.4, found by 100(4.8/4.6+4.7/4.6+4.9/4.6)/3

Regional unemployment is 4.4 percent above the national average in 2007.
b. 100.7, found by 100(10/9.7+8.5/9.7+10.8/9.7)/3
Regional unemployment is 0.7 percent above the national average in 2010.
c. 206.5, found by 100[{(141,500)10 + (22,700)8.5 +
(22,200)10.8}/{(141,500)4.8+(22,700)4.7+(22,200)4.9 } ]
Regional unemployment increased by 106.5 percent between 2007 and 2010.

3. 55.44, found by 1.20[3.5 + (0.7)(61)] and 44.73, found by 0.90[3.5+ (0.7)(66)]

Review 6-1
A Review of Chapters 15 and 16

SOLUTION TO CASE I

THE CENTURY NATIONAL BANK

Below is a correlation matrix, showing all possible simple coefficients of correlation. The independent
variable ATM, indicating the number of ATM transactions per month, has the strongest correlation with
the dependent variable balance. There are not any strong correlations among any of the independent
variables.
Balance ATM Services Debt
ATM 0.709
Services 0.374 0.227
Debit 0.124 0.014 0.174
Interest 0.197 0.090 0.026 0.0223

Following output shows the relationship between the dependent variable, balance, and the four
independent variables. The multiple coefficient of determination is 0.585. This indicates that 58.5
percent of the variation in the account balance is accounted for by the four independent variables.

The global test of hypothesis is as follows:

Ho: 1 = 2 = 3 = 4 = 0 H1: Not all i’s equal 0.

The decision rule is to reject the null hypothesis if the computed value of F is greater than 2.55. The
computed value of F is 19.36, so the null hypothesis is rejected. We conclude that not all the regression
coefficients equal 0.
Source DF SS MS F p
Regression 4 12292186 3073047 19.36 0.000
Error 55 8729247 158714
Total 59 21021432
s = 398.4 R-sq = 58.5% R-sq(adj) = 55.5%
Next, we can test the net regression coefficients individually to find which should remain in the
regression equation and which should be dropped. The critical values of t are 2.00 and 2.00. From the
column headed “t-ratio”, the computed value for ATM and Services exceed the critical values and those
of Debit and Interest do not. This suggests that the two independent variables debit and interest can be
dropped from the analysis.

The regression equation is:

Balance = 1.75 + 90.5 ATM + 60.0 Services + 161 Debit + 219 Interest
Predictor Coef Stdev t-ratio p
Constant 174.9 167.1 1.05 0.300
ATM 90.47 12.45 7.27 0.000
Services 59.99 27.43 2.19 0.033
Debit 161.0 108.4 1.49 0.143
Interest 218.8 119.9 1.82 0.073

Review 6-2
A Review of Chapters 15 and 16

SOLUTION TO CASE II

TERRY AND ASSOCIATES

The computer output is a follows.
Predictor Coef Stdev t-ratio p
Constant 13.3863 0.4683 28.58 0.000
Prep 0.01408 0.03883 0.36 0.719
Delivery 0.00241 0.01415 0.17 0.866
Distance 0.88586 0.05162 17.16 0.000
s = 0.7729 R-sq = 95.7% R-sq(adj) = 95.4%

The three independent variables explain more than 95 percent of the variation in cost. The estimated
delivery cost is $0.75, found by 13.4  0.141(10) + 0.0024(30) +0.866(14).

The compute value of F and the p-values indicate that not all the net regression coefficients equal 0.
Looking at the individual regression coefficients, Distance is the only one that is significant. The others
can be dropped. With only Distance as an independent the regression output is as follows.
Predictor Coef Stdev t-ratio p
Constant 13.2559 0.3158 41.98 0.000
Distance 0.89385 0.02755 32.44 0.000
s = 0.7579 R-sq = 95.6% R-sq(adj) = 95.5%

Analysis of Variance
Source DF SS MS F p
Regression 1 604.48 604.48 1052.35 0.000
Error 48 27.57 0.57
Total 49 632.05
The value of R-square is virtually the same and the independent variable Distance is significant. So we
conclude that the only variable that is related to Cost is the Distance. The cost increases about $0.90 for
each additional mile.

Review 6-3
A Review of Chapters 15 and 16

PRACTICE TEST

Part I

1. denominator
2. index
3. quantity
4. base period
5. 1982-84
6. trend
7. moving average
8. autocorrelation
9. residual
10. same

Part II

1. a. 111.54, found by (145,000/130,000)*100 for 2006

92.31, found by (120,000/130,000)*100 for 2007
130.77, found by (170,000/130,000)*100 for 2008
146.15, found by (190,000/130,000)*100 for 2009
b. 67.13, found by (120,000/137,500)*100 for 2007
95.10, found by (170,000/137,500)*100 for 2008
106.29, found by (190,000/137,500)*100 for 2009
2. a. 108.91, found by (1100/1010)*100
b. 111.18, found by (4525/4070)*100
c. 110.20, found by (5400/4900)*100
d. 110.69, found by the square root of (111.18)*(110.20)
3. For January of the 5th year, the seasonally adjusted forecast
is 70.0875, found by 1.05*[5.50+1.25(49)]
For February of the 5th year, the seasonally adjusted forecast
is 66.844, found by 0.983*[5.50+1.25(50)]

Review 6-4