Exercises; Solve the problems using step by step procedure.

1. In recent years, there had been several studies on the effects of computers on people
who spent substantial amount of time staring at computer monitors. Image quality of
monitors, among other things, produces eye strain and affects work efficiency.

An experiment in which image quality ( x ) and average time ( y in seconds ) spent by a

group of subjects to read certain passages were recorded, as shown on the table below.

A B C D E F G H

x 4.30 4.55 5.55 5.65 5.95 6.30 6.45 6.45

Y 8.00 8.30 7.80 7.25 7.70 7.50 7.60 7.20

a. Determine the Pearson’s product-moment correlation coefficient between the two

variables.
b. Describe the degree of relationship of the 2 variables.
N=8 A B C D E F G H Σ
x 4.30 4.55 5.55 5.65 5.95 6.30 6.45 6.45 45.20
Y 8.00 8.30 7.80 7.25 7.70 7.50 7.60 7.20 61.35
xy 34.40 37.77 43.29 40.96 45.82 47.25 49.02 46.44 344.94
x2
18.49 20.70 30.80 31.92 35.40 39.69 41.60 41.60 260.22
y2
64.00 68.89 60.84 52.56 59.29 56.25 57.76 51.84 471.43

❑ ❑ ❑
n( ∑ ❑ xy )−( ∑ ❑ x )( ∑ ❑ y )
r = ❑ ❑ ❑
√¿ ¿ ¿

8 ( 344.94 ) −( 45.20 ) ( 61.35)

= √¿¿¿

2758.54−2773.02
= √2081.72−(2043.04 )¿ [ 3771.46−3763.82 ] ¿
 −13.48 −13.48 −13.48
= √[38.68¿] [ 7.64 ] ¿ = √295.42 = 17.19 =-0.78
The r = - 0.78 indicates that there is a very high negative correlation between image
quality and average time in seconds.
We can say that there exists a 78% variation between the relationship of the image
quality and average time in seconds spent staring at computer monitors. As the image
quality increases the time in seconds decreases.

2. An insurance company wished to examine the relationship between income and amount
of life insurance held by heads of families. The company drew as simple random sample
of 10 heads of families and obtained the following results as shown in the following
table:

Amount of Life Insurance Monthly Income

Family
(in thousand pesos) (in thousand pesos)

A 20 10

B 30 12

C 50 15

D 100 23

E 200 35

F 40 12

G 80 13

H 150 28

I 300 45

J 70 18

a. Determine the linear regression equation using the method of least squares with the
monthly income as the independent variable.
b. Estimate the amount of life insurance obtained by a family head from the same
population whose monthly income is P 20, 000.
 Amount of Life Monthly Income
Insurance (in thousand pesos) xy x2 y2
Family (in thousand pesos) y x
A 20 10 200.00 100.00 400.00
B 30 12 360.00 144.00 900.00
C 50 15 750.00 225.00 2,500.00
D 100 23 2,300.00 529.00 10,000.00
E 200 35 7,000.00 1,225.00 40,000.00
F 40 12 480.00 144.00 1,600.00
G 80 13 1,040.00 169.00 6,400.00
H 150 28 4,200.00 784.00 22,500.00
I 300 45 13,500.00 2,025.00 90,000.00
J 70 18 1,260.00 324.00 4,900.00
n=10 1040 211 31,090.00 5,669.00 179,200.00
Y=104 x = 21.1

❑
nΣxy−∑ ❑ x Σ y
❑
b= ❑
n( ∑ ❑ x 2 )−¿ ¿
❑

(10)(31090)−(211)(1040) 91460
b=
10 (5669)−211²
= 12169
= 7.52

❑ ❑ ❑
( Σ y)( ∑ ❑ x )−( ∑ ❑ x )( ∑ ❑ xy )
2

a= ❑
❑
❑ ❑

n( ∑ ❑ x )−¿ ¿
2

(1040)(5669)−(211)(31090) −664230
a= 10(5669)−211² = 12169 = -54.58

a = y – bx
 = 104 – (7.52)(21.1) = -54.58
Hence, the least square regression line is
Y = -54.58 + 7.52x
Y = a + bx
= -54.58 + (7.52)(20)
= 95.82 or 95,820
Therefore, if a family head drawn from the same population had a monthly income of P20,000,
its estimated amount of life insurance shall be ₱95,820.00.

3. A financial analyst believes that the interest rate on bonds is inversely related to the
interest rate for loans. Hence, bonds perform well when lending rates are down and
vice versa. Observations on 5 transactions taken at random showed the following
results:

Interest Rates ( % ) on Loan Interest Rates ( % ) on Bond

10 4

5 11

7 8

3 12

6 10

a. Obtain the regression equation

b. Plot the regression line on the scatter diagram.
c. Predict the bond rate if the interest rate for loans is 12%
d. Calculate the coefficient of determination.

Interest Rates ( % ) on Interest Rates ( % )

Loan (x) on Bond (y) xy x2 y2
 1 10 4 40 100 16

2 5 11 55 25 121

3 7 8 56 49 64

4 3 12 36 9 144

5 6 10 60 36 100

n=5 Σ x =31 Σ y =45 Σ xy =247 219 445

x=6.2 y=9
❑
nΣxy−∑ ❑ x Σ y
❑
b= ❑
n( ∑ ❑ x 2 )−¿ ¿
❑

(5)(247)−(31)( 45)
b=
5(219)−31²
= −160
134
= -1.19

❑ ❑ ❑
( Σ y)( ∑ ❑ x )−( ∑ ❑ x )( ∑ ❑ xy )
2

a= ❑
❑
❑ ❑

n( ∑ ❑ x 2)−¿ ¿
❑

( 45)(219)−(31)(247) −4326
a= 5(219)−31² = 134 = -32.28

a = y – bx
 = 9 – (-1.19)(6.2) = 16.38
Hence, the least square regression line is
Y = 16.38 + -1.19x

Y = a + bx
= 16.38 + (-1.19)(12)
= 2.1

❑ ❑ ❑
n( ∑ ❑ xy )−( ∑ ❑ x )( ∑ ❑ y )
r = ❑ ❑ ❑
√¿ ¿ ¿

5 (247 )−( 31 ) (45)

= √¿ ¿ ¿
 −160 −160 −160
= √[134¿] [ 200 ] ¿ = √26800 = 163.71 =-0.98

The r = - 0.98 indicates that there is a very high negative correlation between the
interest rates on loans and interest rates on bonds.