ESSEN OF BUSINESS ANALYTICS (LL) BOM
2nd Edition
ISBN: 9781337128629
Author: Camm
Publisher: CENGAGE L
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Chapter 7, Problem 7P
The Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 (S&P 500) indexes are used as measures of overall movement in the stock market The DJIA is based on the price movements of 30 large companies: the S&P 500 is an index composed of 500 stocks. Some say the S&P 500 is a better measure of stock market performance because it is broader based. The closing price for the DJIA and the S&P 500 for 15 weeks, beginning with January 6, 2012, follow (Barron’s web site, April 17, 2012).
- a. Develop a scatter chart for these data with DJIA as the independent variable. What does the scatter chart indicate about the relationship between DJIA and S&P 500?
- b. Develop an estimated regression equation showing how S&P 500 is related to DJIA. What is the estimated regression model?
- c. What is the 95% confidence interval for the regression parameter β1? Based on this interval, what conclusion can you make about the hypotheses that the regression parameter β1 is equal to zero?
- d. What is the 95% confidence interval for the regression parameter β0? Based on this interval, what conclusion can you make about the hypotheses that the regression parameter β0 is equal to zero?
- e. How much of the variation in the sample values of S&P 500 does the model estimated in part (b) explain?
- f. Suppose that the closing price for the DJIA is 13,500. Estimate the closing price for the S&P 500.
- g. Should we be concerned that the DJIA value of 13,500 used to predict the S&P 500 value in part (f) is beyond the
range of the DJIA used to develop the estimated regression equation?
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Chapter 7 Solutions
ESSEN OF BUSINESS ANALYTICS (LL) BOM
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