Regression Diagnostics and Pitfalls The scatterplot below shows fabricated data

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 S9.75 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 1.40 120 100 90- 40 10 14 16 18 20 r: 0.91 Regression Line Piot Residuals x = 8.45 y = 4.69 Problem 12 Consider a large group of public corporations. Suppsethat their earnings in consecutive quarters are positively associated. Because of the regression effect, the corporation with the highest eamings in the present quarter will tend to have (Q17) 2 earnings in the next quarter. A. lower lhan average B nearly average C. higher than average

Explanation / Answer

Since the association is positive, the corporation with the highest earnings in the present quarter will tend to have higher then average earnings in next quarter.

Option C is correct.

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