Regression Diagnostics and Pitfalls The scatterplot below shows fabricated data

Question

Regression Diagnostics and Pitfalls The scatterplot below shows fabricated data for the price per share versus earnings per share per year of 100 public corporations. The average earnings per share is $9.75 per year with an SD of $5.98 per year, and the average price per share is $69.23 with an SD of $34.81. The correlation between price and earnings is 0.905. (Use this figure in your calculations, not the value of the correlation coefficient in the applet.) Faux Price per share vs. Earnings Data 140 120 100 60 40 20 0 2 461012 14 5 18 20 r: 0.91 Regression Line Plot Residuals x-8.45 y = 4.69 Problem 4 Estimating the price per share of a company whose annual earnings per share is $-26.13 is (Q4)- A: interpolation

Explanation / Answer

Since our data range is typically from $0 to $20 earnings,predicting price per share of company with annual earnings of $ -26.13 would be an extrapolation.

Option B is correct.

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