DEPARTMENT OF FINANCE AND OPERATIONS

FACULTY OF MANAGEMENT

STAT-2066-EL: Business Statistics

Review Problems: Final Exam

______________________________________________________________________
Problem 1. Everybody seems to agree that when the interest rate increases, the
demand for real estate decreases. If the demand decreases due to an increase in the
interest rate, would it be so of the offer of new housing? To answer this question, we
have collected, over 58 years “t”
- the average interest rate of a five-year mortgage, Rt , (source : Bank of Canada);
and
- the number of residential housing starts (in thousands), H t , over the second half
of year t and the first half of year t+1 (source : Statistics Canada).
# t Rt (%) Ht (thousands)
1 1955 5,879 136,5
2 1956 6,225 130,5
3 1957 6,854 148,5
Preview of the data :

56 2010 4,815 192,0

57 2011 4,569 204,5
58 2012 4,237 201,5

A regression line was fitted to the data via the Least Squares Method. The following
results were obtained:
ANOVA
Degrees
of Mean F-Statistic
Source Freedom Sum of Squares Squares
1 253.12 0.1555
Regression 253.11512
 56 1627.90
Error 91,162.44
57
Total 91,415.55603

Intercept Variable Rt
Coefficients 176.62509 0.68933
Standard
deviation 16.49439 1.74816
t statistic 10.70819 0.39432
p-value 0.00000 0.34742
Lower limit
CI = 95% 143.58286 -2.81265
Upper limit
CI = 95% 209.66732 4.19131
Lower limit
CI = 30% 170.23676 0.01226
Upper limit
CI = 30% 183.01342 1.36639

(a) Fill in the blanks in the above ANOVA table.

(b) Based on the regression analysis, if the interest rate increases will the number of
residential housing starts increase? Decrease? Justify.
It will increase as b1 = 0.68933 > 0
(c) Show that the standard error is approximately 40.347.
SSE
s   MSE  1, 627.9007  40.347
n2
(d) Based on the regression, what would be the number of residential housing starts
if the interest rare were 5%?
𝑦̂ = 𝑏0 + 𝑏1 𝑅𝑡 = 176.62509 + 0.68933𝑅𝑡
𝑦̂ = 176.62509 + 0.68933x5=180.07174x1000 (since # of housing starts is in
thousands)
(e) For a significance level of 5%, can we assert that there is a linear relationship
between the number of housing starts and the interest rate? Justify. How about a
significance level of 70%?
p-value b1 = 0.34742 > 0.05, we would not reject H0 (no linear relationship); so no
relationship at the 5% significance level; but we would reject H0 at the 70%
significance level.
(f) Provide an assessment of the quality of the regression.
The regression is not of good quality; at the 5% significance level, we saw that
we would not reject H0 (no linear relationship).
Problem 2. A company recorded the daily demand (in thousand of units), Y, for its
product, as well as the unit price (in hundred of dollars), X, over an 11-day period. The
statistician of the company fitted a regression model to the data, and obtained the
following information:

 x  154;  x
i
2
i  2,586; sx2  43;
 y  451;  y
i
2
i  18,901; s y2  41;
 x y 5,930;
i i

SSE  67.08.
We know that the least squares estimates of the regression coefficients are given by

b1 
 x y  n x y ;
i i

 x  n x 2 2
i

b0  y  b1 x.

(a) What is the equation of the regression line estimated by the least squares
method?
154
x  14
11
451
y  41
11
5,930  1114  41
b1   0.8930
2,586  11142
b0  41  0.8930 14  53.5023

(b) Fill in the blanks in the following ANOVA table. Show your calculations.

ANOVA
Degrees
of Sum of Mean F-
Source Freedom Squares Squares Statistic
Regression 1 342.92 342.92 46.0091
Error 9 67.08 7.4533 ---
Total 10 410 --- ---

Calculations:
 Variation in y  (n  1)  s y2  10  41  410
SSR  SST  SST  410  67.08  342.92
SSR
MSR   342.92
1
SSE 67.08
MSE    7.4533
n2 9
MSR 342.92
F   46.0091
MSE 7.4533
(c) If the unit price is $59.9126 x 100, what is the estimate of the average daily
demand for the product?
53.5023 – 0.8930  59.9126  0.0003  0
(d) For a significance level of 2%, can we say that there is a linear relationship
between the unit price and the daily demand?
H 0 : 1  0
H1 : 1  0
b1  0 0.8930
t 
sb1 sb1
s MSE 7.4533
sb1     0.1317
 n  1 s 2
x  n  1 s 2
x
10  43
0.8930
t  6.7828
0.1317
t 2;n  2  t0.01;9  2.821
t  t 2;n  2 ; reject H 0 (there seems to be a linear relationship)

(e) Find a 99% confidence estimate for the average daily demand corresponding to
all $20 x 100 unit prices.
1 ( xg  x )
2

CI  yˆ  t s 
2
;n  2 n (n  1) sx2
xg  20
yˆ  53.5023  0.8930  20  51.7163
t  t0.005;9  3.25
;n  2
2

1  20  14 
2

CI  51.7163  3.25  7.4533  

11 430
CI   48.0085;55.4241  1, 000

Problem 3. A new highway has just been completed and the government must decide on
speed limits. There are several possible choices. However, on advice from the police who
monitor traffic the objective was to reduce the variation in speeds, which it is thought to
contribute to the number of collisions. It has been acknowledged that speed contributes
to the severity of collisions. It is decided to conduct an experiment to acquire more
information. Signs are posted for 1 week indicating that the speed limit is 70 mph. A
random sample of cars’ speeds is measured. During the second week, signs are posted
indicating that the maximum speed is 70 mph and that the minimum speed is 60 mph.
Once again a random sample of speeds is measured. The following information was
obtained for the two weeks.
Week 1 Week 2
Sample size 100 100
Mean speed 70.76 71.01
Standard deviation of 4.40 3.56
the speeds

Based on a significance level of 5%, can we say that limiting the minimum and maximum
speeds reduces the mean speed?
If the mean speed is reduced, that means that the mean speed over week 1 ( 1 ) is greater
than the mean speed over week 2 (  2 ). Therefore, we have the following hypothesis
testing:
H 0 : 1  2  0
H1 : 1  2  0

Since the two population variances are unknown, and no indication is provided on
whether they can be assumed equal, we need to conduct a formal F-test.

 12
H0 : 1
 22
 12
H1 : 2  1
2
s12 (4.40) 2
F   1.5276
s22 (3.56) 2

The F-test is a bilateral test. We need to find the two critical values:
F and F 
;n1 1;n2 1 1 ;n1 1;n2 1
2 2
F  F0.025;99;99  F0.025;100;100  1.48
; n1 1; n2 1
2

1 1
F   
1 ; n1 1; n2 1 F F0.025;99;99
2
; n2 1; n1 1
2

1 1
   0.6757
F0.025;100;100 1.48

Since F  1.5276  F0.025;100;100  1.48 , we reject the null hypothesis, thus we need to
consider the variances to be unequal.
Let’s come back to our original testing. The test statistic is:

x1  x 2  ( 1  2 ) 70.76  71.01  0
t   0.4417
2 2
s s 4.402 3.562
1
 2

n1 n2 100 100

Since we use the unequal variance assumption here, we know that the number of degrees
of freedom is given by the beautiful formula that you know 

 
2
 s12 s22  2
 n   4.402  3.562
n2 
 
100 100
  190.3044  190
1

   
2 2 2 2
 s12   s22  4.402 3.562
 n   n  100 100
 1  2 
 100  1 100  1
n1  1 n2  1
t ;  t0.05;190  1.653

Since t  0.4417  t0.05;190  1.653 , we can’t reject the null hypothesis; therefore we can’t
say the mean speed was reduced.