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    Practical Exercise 8 - Solution

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    midori
    The document provides data on inflation rates and prime lending rates over 7 years. It then asks questions about analyzing the relationship between these two variables: 1) There is a clear, nearly linear relationship between inflation and lending rates, making linear regression reasonable. 2) The correlation coefficient of 0.908 indicates a strong positive relationship: as inflation increases, so does lending rate. 3) The coefficient of determination of 0.825 means inflation explains 82.5% of variation in lending rates. 4) The regression equation to predict lending rate from inflation is: Y = 3.18 + 0.65X

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    Practical Exercise 8 - Solution

    Uploaded by

    midori
    283 views3 pages
    The document provides data on inflation rates and prime lending rates over 7 years. It then asks questions about analyzing the relationship between these two variables: 1) There is a clear, nearly linear relationship between inflation and lending rates, making linear regression reasonable. 2) The correlation coefficient of 0.908 indicates a strong positive relationship: as inflation increases, so does lending rate. 3) The coefficient of determination of 0.825 means inflation explains 82.5% of variation in lending rates. 4) The regression equation to predict lending rate from inflation is: Y = 3.18 + 0.65X

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    Practical Exercise 8_Solution

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    The document provides data on inflation rates and prime lending rates over 7 years. It then asks questions about analyzing the relationship between these two variables: 1) There is a clear, nearly linear relationship between inflation and lending rates, making linear regression reasonable. 2) The correlation coefficient of 0.908 indicates a strong positive relationship: as inflation increases, so does lending rate. 3) The coefficient of determination of 0.825 means inflation explains 82.5% of variation in lending rates. 4) The regression equation to predict lending rate from inflation is: Y = 3.18 + 0.65X

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    283 views3 pages

    Practical Exercise 8 - Solution

    Uploaded by

    midori
    The document provides data on inflation rates and prime lending rates over 7 years. It then asks questions about analyzing the relationship between these two variables: 1) There is a clear, nearly linear relationship between inflation and lending rates, making linear regression reasonable. 2) The correlation coefficient of 0.908 indicates a strong positive relationship: as inflation increases, so does lending rate. 3) The coefficient of determination of 0.825 means inflation explains 82.5% of variation in lending rates. 4) The regression equation to predict lending rate from inflation is: Y = 3.18 + 0.65X

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Practical Exercise

    The data below indicates the inflation rate and prime lending rate has been given for the last 7 years.

    Inflation Rate % (x) 3.3 5.8 6.2 6.5 7.6 9.1 11


    Prime Lending Rate % (y) 5.2 6.8 8.0 6.9 9.0 7.9 10.8

    (a) Plot a scatter diagram for the given data and comment on the suitability for simple
    regression analysis.

    The data show a clear and nearly linear trend. Linear regression analysis seems reasonable.
    (b) Calculate the correlation coefficient given:
    Σx =386.79; Σy2= 444.94 and Σxy =410.14
    2

    Interpret your answer in the context of the question.


    Σx= 49.5;Σy= 54.6

     x y 49.5 * 54.6
     xy  n
    410.14 
    7
    r 
     x2  
     ( x) 2
    .  y 2  
     ( y) 2 
     (386.79) 
    49.5
    2
    (444.94) 
    54.6
    2

     n  n  7 7
      
    410.14  386.1 24.04
       0.908
    (386.79) 
    49.5 2
    (444.94) 
    54.6 2
    36.75 19.06
    7 7

    There is a strong positive relationship between inflation rate and prime lending rate, as inflation increases so
    does prime lending rate.

    Page 1
    Practical Exercise

    (c) Calculate the coefficient of determination and interpret your answer in the context of the question.

    r2 = 0.825;
    So 82.5% of the variation in prime lending rate can be explained by the inflation rate. 17.5% is left
    unexplained.

    (d) Find the equation of the least-squares regression line, assuming that prime lending rate is the dependent
    variable and inflation rate is the independent variable.Add the line to your scatter plot.

    Σx= 49.5;Σy= 54.6

    Y =a +bX

    Mean X = 49.5 / 7 = 7.07


    Mean Y = 54.6 / 7 = 7.8

    410.14  386.1 24.04


       0.654
    386.79 
    49.5 2
    36.75
    7

    (2 marks)

    a= 7.8 – 0.654(7.07) = 3.176


    (1.5 marks)
    The regression equation of prime lending rate and inflation rate is given as:
    Y = 3.18 + 0.65 X (1 mark)
    Line to scatter plot (1.5 mark)

    (e) What is the prime lending rate if the inflation is rate is 13.5%?
    Prime lending rate = 3.18 + 0.65(13.5) = 11.96%

    Page 2
    Practical Exercise

    1. Two managers are asked to rank a group of employees in order of potential fro eventually becoming
    top managers. The rankings are as follows:
    Employees A B C D E F G H I J
    Manger I Ranking 10 2 1 4 3 6 5 8 7 9
    Manager II Ranking 9 4 2 3 1 5 6 8 7 10

    Compute the coefficient of rank correlation and comment on the value.


    6 ∑ 𝐷2
    N = 10; ΣD2 = Σ (R1 – R2)2 = 14; R = 1 - 𝑁 ( 𝑁2 − 1)

    R = 1 – 0.085 = 0.915
    Thus we find that there is a high degree of positive correlation in the ranks assigned by the two managers.

    A. Where ranks are not given


    When we are given the actual data and not the ranks, it will be necessary to assign the ranks. Ranks can be
    assigned by taking either the highest value as 1 or the lowest values as 1. But whether we start with the lowest
    value or the highest value, we must follow the same method in case of all the variables.

    2. Calculate the rank correlation coefficient for the following data of marks of 2 tests given to candidates
    for a clerical job.
    Preliminary 92 89 87 86 83 77 71 63 53 50
    Test
    Final Test 86 83 91 77 68 85 52 82 37 57

    Preliminary Final Test


    Test (X) R1 (Y) R2 D2 = (R1 - R2)2 6 ∑ 𝐷2
    R = 1 - 𝑁 ( 𝑁2 − 1)
    92 10 86 9 1
    89 9 83 7 4 R = 1 – 0.267 = 0.733
    87 8 91 10 4 There is a high degree of positive
    86 7 77 5 4
    correlation between preliminary and
    83 6 68 4 4
    77 5 85 8 9 final test.
    71 4 52 2 4
    63 3 82 6 9
    53 2 37 1 1
    50 1 57 3 4
    ΣD2 44

    Page 3

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