Regression Diagnostics and Pitfalls The scatterplot below shows fabricated data
ID: 3045636 • Letter: R
Question
Regression Diagnostics and Pitfalls The scatterplot below shows fabricated data for the price per share versus earnings per share per year of 100 public corporations. The average earnings per share is $9.75 per year with an SD of $5.98 per year, and the average price per share is $69.23 with an SD of $34.81. The correlation between price and earnings is 0.905. (Use this figure in your calculations, not the value of the correlation coefficient in the applet.) Faux Price per share vs. Earnings Data 140 120 100 60 40 20 0 2 461012 14 15 1 20 : 0.91 | Regression Line | | Plot Residuals x-8.45 y = 4.69 Problem3 The regression line estimate of the price per share of a company whose annual earnings per share is $-26.13 is $ (Q3)Explanation / Answer
hre slope of regressin line b1 =r*Sy/Sx =0.905*34.81/5.98=5.268
and intercept bo =Ybar -b1*Xbar =69.23-5.268*9.75=17.867
hence regression equation is Yhat =b0+b1*x =17.867+5.268*x
therefore for x=26.13;
estimated price =17.867+26.13*5.268=$155.52
( Note: please revert if that is a negative sign on 26.13)