THE INSTITUTE OF FINANCE MANAGEMENT (IFM)

Department Computer Science and Mathematics

Tutorial Questions
MTU 07203: Business statistics

Simple Linear Regression and Correlation

From 16th - 29th May 2021

Question 1
a) Differentiate between regression and correlation of variables
b) State the assumption of Method of Least Square
c) Describe the simple linear regression equation
d) Distinguish between simple and multiple regression model
e) Describe the five types of correlation relationship between two variables
f) The data in the table obtained from the claims drawn on the life assurance policies for a
particular category of employment, relates age at official retirement to age at death for nine
males.
Age at retire 57 62 60 57 65 60 58 62 56

Age at death 71 70 69 70 69 67 69 63 70

i) What are the variables under this situation?

ii) How many observations are there?
iii) Which variable is explanatory?
iv) Represent the information in scatter diagram
v) Determine the linear regression model that exists between the two variables.
vi) What type of regression is this?
vii) Determine and interpret the coefficient correlation and determination between the two
variables
viii) Find the rank of correction of the age at retire and age at death.

Question 2
The McDonald’s Corporation is the leading global foodservice retailer with more than 30,000
local restaurants serving nearly 50 million people in more than 119 countries each day. This
global presence, in addition to its consistency in food offerings and restaurant operations, makes
McDonald’s a unique and attractive setting for economists to make salary and price comparisons
around the world. Because the Big Mac hamburger is a standardized hamburger produced and
sold in virtually every McDonald’s around the world, the Economist, a weekly newspaper
focusing on international politics and business news and opinion, as early as 1986 was compiling
information about Big Mac prices as an indicator of exchange rates. Building on this idea,
researchers Ashenfelter and Jurajda proposed comparing wage rates across countries and the
price of a Big Mac hamburger. Shown below are Big Mac prices and net hourly wage figures (in
U.S. dollars) for 27 countries. Note that net hourly wages are based on a weighted average of 12
professions.

Country Big Mac Price (U.S. $) Net Hourly wage (U.S. $)

Mexico 2.18 2
New Zealand 2.22 6.8
Philippines 2.24 1.2
Poland 1.62 2.2
Russia 1.32 2.6
Singapore 1.85 5.4
South Africa 1.85 3.9
South Korea 2.7 5.9
Sweden 3.6 10.9
Switzerland 4.6 17.8
Thailand 1.38 1.7
Turkey 2.34 3.2
United States 2.71 14.3

i) Is there any relationship between the price of a Big Mac and the net hourly wages of workers
around the world? If so, how strong is the relationship?
ii) Calculate the regression equation to predict or determine the net hourly wage of a worker
around the world by the price of a Big Mac hamburger in that country.
iii) If a model can be calculated to determine the net hourly wage of a worker around the world
by the price of a Big Mac hamburger, what would be the predicted net hourly wage of a
worker in a country if the price of a Big Mac hamburger was $3.00?