Business Statistics II

Home Assignment 1

Tural Hüseynov
Mahammad Ali Hazizada
Elvin Nasrullayev

Problem 1

a) State the meaning of the coefficients 0.10 and 5.33 in this equation in terms of the impact of
F and R on Y. Interpret the coefficient again.

The meaning of coefficients 0.10 and 5.33 in the equation mean that if we increase
Fertilizer 1 pound per acre we will see 0.10 bushels per acre. Moreover, 1 ince increase in
Rainfall will lead to 5.33 bushels of increase per acre. Overall we can see there is positive
relationships between Fertilizers and Bushels per acre and the same realtionship between
Rainfall and bushels per acre. In this regression F and R are independent variables
(regressor) and Y (corn yield) is dependent variable (regressand)
b) The constant term -120 does not mean that negative amount of corn is possible. It implies
that in order to have. We need to have at least certain amount of Fertilizer and rainfall in
order to have grow corn in the field. If we have some positive numbers of F and R but Y still
equals to negative number, it implies that these indicators of F and R is not enough to grow
corn in the field.Suppose you were told that the true value of (population slope of
fertilizer) is known to be 0.20. Does this show that the estimated parameter is biased? Why
or why not?
No. The estimator B’f could still be unbiased. (Y’t= -120+0.2Ft+5.33Rt). 0.1 is the estimated
coefficient, but the mean of B’f could still equal to the true value of Bf.
E(B’f)= Bf => estimator is unbiased.
c) Firstly, it depends, which confidence interval we are taking. If we take 95 Percent
confidence interval, our alfa will be 0.05 and if we consider two tailed test, we will have alfa
divided by 2 which will be 0.025 which is equal to -1.96 and +1.96 z statistics. If we refer to
the calculation in F 33 and 34 cells, we can see that z statistics is 2 which is out of our
confidence interval zone. Therefore, with 95 percent confidence, we can claim that if
population of F is 0.20, with 0.05 standard error, 0.10 is biased.

Problem 2
a. Estimate the relationship between GPA and ACT using OLS (Ordinary Least Squares)
method; that is obtain the intercept and slope estimates in the equation
=b0+ b1
Comment on the direction of the relationship. Explain. How much higher is the
(GPA predicted) to be if the ACT score is increased by 5 points?

For obtaining b1
 𝛴(𝑥𝑖 − 𝑥̅ )(𝑦𝑖 − 𝑦̅)
𝑏1 =
𝛴(𝑥𝑖 − 𝑥̅ )2
𝑏0 = 𝑦̅ − 𝑏1 ∗ 𝑥̅

GPA = y

𝑦̅ = 3
ACT = x

𝑥̅ = 8

(9−8)(3−3)+(10−8)(4−3)+(8−8)(3−3)+(9−8)(4−3)+0+(7−8)(0)+(6−8)(0)+(7−8)(2−3) 2+1+1 4 1
𝑏1 = = = =
(9−8)2 +(10−8)2 +0+1+0+1+4+1 12 12 3

1 1
𝑏0 = 3 − ∗ 8 =
3 3

1 1
𝑦̂ = + 𝑥
3 3

1 1 6
+ ∗5= =2
3 3 3

b. Compute the fitted values and residuals for each observation and verify that the residuals
(approximately) sum to zero.

SST=SSR+SSE
𝑆𝑆𝑇 = (𝑦 − 𝑦̅)2
𝑆𝑆𝐸 = (𝑦 − 𝑦̂)2
𝑆𝑆𝑅 = (𝑦̂ − 𝑦̅)2
1 11 10 8 8 71
𝑦̂ = 3 3 𝑦̂2 = 𝑦̂3 =3 𝑦̂4 = 𝑦̂5 = 3 𝑦̂6 = 3 𝑦̂7 = 3 𝑦̂8 =
3 3 3
1 1
𝑦̂ = 𝑏0 + 𝑏1 𝑥 = + 𝑥
3 3

𝑦̅ = 3
SST=(3-3)2+(4-3)2+(3-3)2+(4-3)2+(2-3)2+(3-3)2+(3-3)2+(2-3)2=4
1 1 2 1 2 2 2
𝑆𝑆𝐸 = (− 3)2 + (3)2 + 0 + (3)2 + 1 + (3)2 + (3)2 + (− 3)2 = 2 3
2 1
𝑆𝑆𝑅 = 4 − 2 3 = 1 3
Residual for each observation
1 1 2 1 2 2
− 3 + 3 + 0 + 3 − 1 + 3 + 3 − 3 = 0 ( It is verified )

c. When ACT is 8, in order to find the predicted value of gpa, we just put 8 in the equation
to estimate GPA. The cell K115 shows how we get the value of 3 GPA if our ACT score
is 8. The same procedure we are going to use. If ACT score 14 , GPA will be 5 (refer to
cell P 115). However, GPA 5 is not possible. Therefore we will consider it as maximum
4.

d. How much of the variation in GPA for these 8 students is explained by ACT? Explain.

𝑆𝑆𝑅 4 1 1
Square root of R square = 3 ∗ 4 = 3 = 0.33
𝑆𝑆𝑇

Coefficient of correlation 0.33 shows that 33 percent of variantion in GPA can be

explained by ACT results. This means 67 percent of variation is related to other factors.