Regression and coefficient of correlation
Linear Regression and Correlation
Mr. William Profit is studying companies going public for the first time. He is particularly interested
in the relationship between the size of the offering and the price per share. A sample
of 15 companies that recently went public revealed the following information.
(see the attached chart)
a. Determine the regression equation.
b. Determine the coefficient of determination. Do you think Mr. Profit should be satisfied
with using the size of the offering as the independent variable?
Explain your answers.
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Solution Preview
Please see the attached file. (Tables etc may not be clearly visible here)
Company Size ($millions), per Share, X Price ($millions), per Share, ...
Solution Summary
Solution explains the steps in finding the regression equation between size of offering and price of share. Solution also makes use of coefficient of correlation and determination to coclude whether size of offering as independent variable is justified.
Test for Regression Coefficient using Correlation Coefficient
Use a simple regression model to test the null hypothesis against the alternative
Ho: Beta1 = 0
H1: Beta1 Does NOT = 0
with alpha = 0.05 , given the following regression statistics:
a. The sample size is 35, SST = 100,000, and the correlation between X and Y is 0.46.
b. The sample size is 61, SST = 123,000, and the correlation between X and Y is 0.65.
c. The sample size is 25, SST = 128,000, and the correlation between X and Y is 0.69.