Chapter 14, Problem 59SE

The following data show Morningstar’s Fair Value estimate and the Share Price for 28 companies. Fair Value is an estimate of a company’s value per share that takes into account estimates of the company’s growth, profitability, riskiness, and other factors over the next five years (Morningstar Stocks 500, 2008 edition).

Company	Fair Value ($)	Share Price ($)
Air Products and Chemicals	80	98.63
Allied Waste Industries	17	11.02
America Mobile	83	61.39
AT&T	35	41.56
Bank of America	70	41.26
Barclays PLC	68	40.37
Citigroup	53	29.44
Costco Wholesale Corp.	75	69.76
Covidien, Ltd.	58	44.29
Darden Restaurants	52	27.71
Dun & Bradstreet	87	88.63
Equifax	42	36.36
Gannett Co.	38	39.00
Genuine Parts	48	46.30
GlaxoSmithKline PLC	57	50.39
Iron Mountain	33	37.02
ITT Corporation	83	66.04
Johnson & Johnson	80	66.70
Las Vegas Sands	98	103.05
Macrovision	23	18.33
Marriott International	39	34.18
Nalco Holding Company	29	24.18
National Interstate	25	33.10
Portugal Telecom	15	13.02
Qualcomm	48	39.35
Royal Dutch Shell Ltd.	87	84.20
SanDisk	60	33.17
Time Warner	42	27.60

1. a. Develop the estimated regression equation that could be used to estimate the share price given the fair value.
2. b. At the .05 level of significance, is there a significant relationship between the two variables?
3. c. Use the estimated regression equation to predict the share price for a company that has a fair value of $50.
4. d. Do you believe the estimated regression equation would provide a good prediction of the share price? Use r2 to support your answer.