A security analyst specializing in the stocks of the motion picture industry wis

Question

A security analyst specializing in the stocks of the motion picture industry wishes to ex¬amine the relation between the number of movie theater tickets sold in December and the annual level of earnings in the motion picture industry Time-series data for the last 15 years are used to estimate the regression model E = a + bN; where E is total earnings of the motion picture industry measured in dollars per year and N is the number of tickets sold in December. The regression output is as follows DEPENDENT VARIABLE: E R - SQUARE F-RATIO P-VALUE ON F OBSERVATIONS: 15 0.8311 63.96 0.0001 PARAMETER STANDARD VARIABLE ESTIMATE ERROR T- RATIO P - VALUE INTERCEPT 25042000.0 20131000.0 1.24 0.2369 32.31 8.54 3.78 0.0023 : a. How well do movie ticket sales in December explain the level of earnings for the en¬tire year? Present statistical evidence to support your answer. b. On average, what effect does a 100,000-ticket increase in December sales have on the annual earnings in the movie industry? c. Sales of movie tickets in December are expected to be approximately 950,000. According to this regression analysis, what do you expect earnings for the year to be?

Explanation / Answer

a. How well do movie ticket sales in December explain the level of earnings for the entire year? Present statistical evidence to support your answer.

Ans:-             E= a+bN , E = 25042000 + 32.31N…………….. (1)

              Where E= Total earnings of the motion picture industry

                           N= Number of tickets sold in December

b. On average, what effect does a 100,000-ticket increase in December sales have on the annual earnings in the movie industry?

Ans:- Annual earnings and December sales are linearly related in the regression model. A one unit change in December sales cause Annual earnings to change by a constant 32.31 unit.

On Average, a 100,000 increase in December sales increase annual earning by

       32.31(100,000) = 3,231,000

c. Sales of movie tickets in December are expected to be approximately 950,000. According to this regression analysis, what do you expect earnings for the year to be?

Ans:-       E = a+ bN

                E = 25042000+32.31N

                E = 25042000+32.31(950000)

                E = 55,736,500

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