Essentials of Business Analytics 1st Edition by Jeffrey Camm,James Cochran,Michael Fry,Jeffrey Ohlmann ,David Anderson

Exercise 20

The Dow Jones Industrial Average (DJIA) and the Standard Poor's 500 (S P 500) indexes are used as measures of overall movement in the stock market. The DJIA is based on the price movements of 30 large companies; the S P 500 is an index composed of 500 stocks. Some say the S P 500 is a better measure of stock market performance because it is broader based. The closing price for the DJIA and the S P 500 for 15 weeks, beginning with January 6, 2012, follow ( Barron's Web site, April 17, 2012).

a. Develop a scatter chart for these data with DJIA as the independent variable. What does the scatter chart indicate about the relationship between DJIA and S P 500
b. Develop an estimated regression equation showing how S P 500 is related to DJIA. What is the estimated regression model
c. What is the 95 percent confidence interval for the regression parameter b 1 Based on this interval, what conclusion can you make about the hypotheses that the regression parameter b 1 is equal to zero
d. What is the 95 percent confidence interval for the regression parameter b 0 Based on this interval, what conclusion can you make about the hypotheses that the regression parameter b 0 is equal to zero
e. How much of the variation in the sample values of S P 500 does the model estimated in part b explain
f. Suppose that the closing price for the DJIA is 13,500. Estimate the closing price for the S P 500.
g. Should we be concerned that the DJIA value of 13,500 used to predict the S P 500 value in part f is beyond the range of the DJIA used to develop the estimated regression equation