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 40 14 16 20 r 0.91 Regression Line Piot Residuals x=8.45 y = 4.69 Problem 6 The equation of the regression line for regressing price per share on annual earnings per share is festimated price per share) -(Q7,) x (annual earnings per share) S(Q8)

Explanation / Answer

Y=price per share, Y =69.23, SD(Y)=34.81

X=annual earnings per share, X = 9.75,SD(X)=5.98

Y= b1*x +b0

b1 = r (s.d(y)/s.d(x))

= 0.905(34.81/5.98)

=5.268

b0 = y - b1 x

=69.23-5.268*9.75

=17.867

The equation of the regression line:

Y=5.268*X+17.867

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