What is the importance of statistics in business decision making? Describe a business situation where statistics was used in making a decision.

 

1) How would you define statistics? How is statistics used in business decision making? Statistics is accurately defined as the study of the analysis, data collection, and organization of the data which is interpreted by a particular business field.

 

 

2) What is the importance of statistics in business decision making? Describe a business situation where statistics was used in making a decision.

 

 

3) The yield on a 30-year treasury note at the end of each year since 1990 is recorded below.

 

   
Compute a five-year (1) moving average and (2) weighted moving average using weights of .1, .1, .2, .3, and .3, respectively.

 

Describe the trend in yield both in

1.  narrative form and
2.  graphical form (see if you can place all the moving averages in one graph — good for comparison).

                     
 
                     
     

year

 

yield

     5 yr.

moving

avg

     5 yr.

weighted

moving avg

         
    1990 8.61              
    1991 8.14              
    1992 7.67          
    1993 6.59          
    1994 7.37          
    1995 6.88          
    1996 6.71          
    1997 6.61          
    1998 5.58          
    1999 5.87          
    2000 5.94            
    2001 5.49              
    2002 5.43  

 

 

 

4) Correlation & Regression Equation:

  1. discuss what is meant by “coefficient of correlation” and “coefficient of determination.”  What are these, what do they measure, what do you know when you have these numbers?
  2. why and how should you test for the significance of the coefficient of correlation?

Assets         Return

Sample             Mutual Fund        ($ millions)      (%)

1 AARP 622.2 10.8
2 Babson 160.4 11.3
3 Compass 275.7 11.4
4 Galaxy 433.2 9.1
5 Keystone 437.9 9.2
6 MFS Bond A 494.5 11.6
7 Nichols 158.3 9.5
8 T Rowe 681 8.2
9 Thompston 241.3 6.8

 

The table above contains data from 9 mutual funds — total assets held by the fund and last year’s return on the investment of the assets (cash).  Please:

 

(1) construct a scatter diagram — be sure you choose the correct dependent and independent variable.  Think about these questions:  Which variable influences the other?  What is the direction of the relationship?  Do assets influence the return or does the return influence the assets?  What you choose as the “causing” variable will be X, what you choose as the variable being “caused” or influenced will be Y.  Discuss your diagram.

 

(2) compute the coefficients of correlation and determination and discuss what they mean.

 

(3) test the significance of the sample correlation computed in #2.

 

(4) develop a regression equation.  What return would you predict for $400M in assets?  Is the regression equation you developed meaningful?  Why or why not?

 

Be sure to highlight every statistic needed to address the problem and discuss what each means.  Be sure to show all 5 steps necessary to test the significance of the correlation.

 

 

 

5) WHAT IS CORRELATION ANALYSIS? Provide an example.

 

 

6) What are the 4 COMPONENTS OF A TIME SERIES? Please explain what all four mean their purpose.

 

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