Practice Question

Simple Linear Regression and Correlation

Q#1:- For the following set of data:

(a) Plot the Scatter diagram.

(b) Develop the estimating equation that best describes the data.
(c) Predict Y for X= 10, 15, 20.
(d) Compute coefficient of determination and interpret it.
(e) Calculate the simple correlation coefficient. And mention the strength of relationship.

X 13 16 14 11 17 9 13 17 18 12
Y 6.2 8.6 7.2 4.5 9.0 3.5 6.5 9.3 9.5 5.7

Q#2:- Cost accountants often estimate overhead based on the level of production. At the standard Knitting
Co., they have collected information on overhead expenses and units produced at different plants, and
want to estimate a regression equation to predict future overhead.

Overhead 191 170 272 155 280 173 234 116 153 178
Units 40 42 53 35 56 39 48 30 37 40

(a) Develop the regression equation for the cost accountants.

(b) Predict overhead when 50 units are produced.
(c) Calculate the standard error of estimate.
(d) Compute coefficient of determination and interpret it.
(e) Calculate the simple correlation coefficient. Also mention the strength of relationship.

Q#3:- Using the data given below

X 16 6 10 5 12 14
Y -4.4 8.0 2.1 8.7 0.1 -2.9

(a) Plot the scatter diagram.

(b) Develop the estimating equation that best describes the data.
(c) Calculate the standard error of estimate.
(d) Predict Y for X= 5, 6, 7.
(e) Compute coefficient of determination and interpret it.
(f) Calculate the simple correlation coefficient. Also mention the strength of relationship.
Q#4:- Sales of major appliances vary the new housing market: when new home sales are good, so are the
sales of dishwashers, washing machines, driers, and refrigerators. A trade association complied the
following historical data (in thousands of units) on major appliance sales and housing starts:

Housing Starts 2.0 2.5 3.2 3.6 3.3 4.0 4.2 4.6 4.8 5.0
(Thousand)
Appliance Sales 5.0 5.5 6.0 7.0 7.2 7.7 8.4 9.0 9.7 10.0
(Thousands)

(a) Develop an equation for the relationship between appliance sales (in thousands) and housing starts (in
thousands).
(b) Interpret the slope of the regression line.
(c) Compute and interpret the standard error of estimate.
(d) Compute coefficient of determination and interpret it.
(e) Calculate the simple correlation coefficient. Also mention the strength of relationship.

Q#5:- A study by the Atlanta, Georgia, Department of Transportation on the effect of bus-ticket prices on the
number of passengers produced the following results:

Ticket Price (cent) 25 30 35 40 45 50 55 60

Passengers per 100 miles 800 780 780 660 640 600 620 620

(a) Plot these data.

(b) Develop the estimating equation that best describes these data.
(c) Predict the number of passengers per 100 miles if the ticket price were 50 cents.
(d) Compute coefficient of determination and interpret it.
(e) Calculate the simple correlation coefficient. Also mention the strength of relationship.

Q#6:- The editor-in-chief of a major metropolitan newspaper has been trying to convince the paper’s owner
to improve the working conditions in the pressroom. He is convinced that the noise level when the
presses are running creates unhealthy levels of tension and anxiety. He recently had a psychologist
conduct a test during which press operators were placed in rooms with varying levels of noise and
then given a test to measure mood and anxiety levels. The following table shows the index of their
degree of arousal or nervousness and the level of noise to which they were exposed (1.0 is low and
10.0 is high).

Noise Level 4 3 1 2 6 7 2 3
Degree of arousal 39 38 16 18 41 45 25 38

(a) Plot these data.

(b) Develop an estimating equation that describes these data.
(c) Predict the degree of arousal we might expect when the noise level is 5.
(d) Compute coefficient of determination and interpret it.
(e) Calculate the simple correlation coefficient. Also mention the strength of relationship.
Q#7:- A firm administers a test to sales trainees before they go into the field. The management of the firm is
interested in determining the relationship between the test scores and the sales made by the trainees at
the end of one year in the field. The following data were collected for 10 sales personnel who have
been in the field one year.

Salesperson Number 1 2 3 4 5 6 7 8 9 10
Test Score (T) 2.6 3.7 2.4 4.5 2.6 5.0 2.8 3.0 4.0 3.4
Number of units sold (S) 95 140 85 180 100 195 115 136 175 150

(a) Find the least-square regression line that could be used to predict sales from trainee test scores.
(b) How much does the expected number of units sold increase - would be sold by a trainee who
received an average test score.
(c) Compute coefficient of determination and interpret it.
(d) Calculate the simple correlation coefficient. Also mention the strength of relationship.

Q#8:- A financial analyst has gathered the data about the relationship between incomes in thousands (X) and
percent investment in securities (Y) from 8 randomly selected families. The data summary is given
below:
X  21, Y  24.5,  X  4700,  Y  5180,  XY  3852
2 2

a) Develop an estimating equation that best describes the data also interpret the regression coeff.
b) Predict percent investment in securities when income will be 22 and 27 thousands.
c) Find coefficients of determination and interpret the results.
d) Find correlation coefficient and determine the degree of strength of association between
income and percent investment in securities.

Q#9:- In finance, it is of interest to look at the relationship between Y, a stock’s average return, and X, the
overall market return. The slope coefficient computed by linear regression is called the stock’s beta by
investment analysts. A beta greater than 1 indicates that the stock is relatively sensitive to changes in
the market; a beta less than 1 indicates that the stock is relatively insensitive. For the following data,
compute the beta and test to see whether it is significantly less than 1. Use α = 0.05.

Y% 10 12 8 15 9 11 8 10 13 11
X% 11 15 3 18 10 12 6 7 18 13

Q#10:- In a regression problem with a sample size of 17, the slope was found to be 3.73 and the standard
error of estimate 28.654. The quantity Sxx =871.56.

(a) Find the standard error of the regression slope coefficient.

(b) Construct a 95% confidence interval for the population slope.
(c) Interpret the confidence interval construct in part (b).
Q#11:-A broker for a local investment firm has been studying the relationship between increases in the price
of gold (X) and her customer’s requests to liquidate stocks (Y). From a data set based on 15
observations, the sample slope was found to be 2.9. If the standard error of the regression slope
coefficient is 0.18, is there reason to believe (at the 0.05 significance level) that the slope has change
from its past value of 3.2?

Q#12:- In 1969, a government health agency found that in a number of counties, the relationship between
smokers and heart-disease fatalities per100,000 population had a slope of 0.08. A recent study of 18
counties produced a slope of 0.147 and a standard error of the regression slope coefficient of 0.032.

(a) Construct a 90 percent confidence interval estimate of the slope of the true regression line. Does
the result from this study indicate that the true slope has changed?
(b) Construct a 99 percent confidence interval estimate of the slope of the true regression line. Does
the result from this study indicate that the true slope has changed?

Q#13:- For a sample of25, the slope was found to be 1.685 and the standard error of the regression
coefficient was 0.11. Is there reason to believe that the slope has changed from its past value of 1.50?
use 5 percent level of significance.

Q#14:- The local phone company has always assumed that the average number of daily phone calls goes up
by 1.5 for each additional person in a household. It has been suggested that people are more talkative
than this. A sample of 64 households was taken, and the slope of the regression of Y(average number
of daily phone calls) on X (size of household) was computed to be 1.8 with a standard error of the
regression slope coefficient of 0.2. Test whether significantly more calls per additional person are
being made than the phone company assumes, using α = 0.05. State explicit hypotheses and an explicit
conclusion.