Review for Exam III
Econ 207
Dr. Khan
1. Solve problems 3 to 10 from review worksheet I.
2. Solve all the problems from review worksheet II.
3. The manager of a mutual fund claims that his fund has averaged a return of 10.2
percent per year with a standard deviation of 3.5 percent for his clients over the past
several years. If a sample of 10 investors reported a mean rate of 9.6 percent, are you
inclined to believe the fund manager? Do your conclusion change, if you have a sample
of 100? Why or why not?
4. The director of admissions at a large university would like to advise parents of
incoming students concerning the cost of textbooks during a typical semester. A sample
of 22 students enrolled in the university indicates a sample average cost of 315.40 with a
standard deviation of 43.20. Should the director tell parents that the average cost on
textbooks is more than $300?
5. The personal director of a large insurance company is interested in reducing the
turnover rate of data processing clerks in the first year of employment. Past records
indicates that 25% of all new hires in this area no longer employed at the end of 1 year.
Extensive new training approaches are implemented for a sample of 150 data processing
clerks. At the end of a 1 year period, of these 150 individuals, 48 are no longer
employed. Is there evidence that the true turnover rate is less than .25? Use  = .03
6. The popularity of Video games sparked interest among arcade owners regarding the
relative merits of different types of amusement. A sample of 40 “flipper and bumper”
games yielded a mean weakly revenue of $280 with a standard deviation of $81. A like
number of electronic games produced a mean revenues of $297 with S = $72. At the 1%
level of significance, is there a difference between two games in their ability to generate
revenue?
7. A man wants to compare Lotus 1-2-3, which is used in his firm, with Microsoft Excel,
which is not used in his firm. He used Microsoft Excel 12 times to calculate a certain
procedure. On average it took 7.2 minutes with a standard deviation of .87 minutes.
When he used Lotus 1-2-3 10 times, it took 7.9 minutes with a standard deviation of .97
minutes to do the same task. Should he suggest to his boss that the firm use Microsoft
Excel?
8. Steve, a security analyst, have always felt that convertible bonds are more likely to be
overvalued than are income bonds. Of 312 convertible bonds examined last year, Steve
found 202 to be over valued, while 102 of the 205 income bonds proved to be
overvalued. Do these data support Steve’s assumption? Use  = .01.
9. The director of graduate studies at a large college of business would like to be able to
predict the grade point index (GPI) of students in an MBA program based on Graduate
Management Aptitude Test (GMAT) score. A sample of 7 students who had completed 2
years in the program is selected. The results are as follows:
Observation
1
2
3
4
5
6
7
GMAT Score
688
647
652
608
680
617
557
GPI
3.72
3.44
3.21
3.29
3.91
3.28
3.02
a. Compute the regression line and interpret.
b. Predict the GPI for a student with a GMAT score of 600.
c. What is the Coefficient of determination? What is the interpretation?
d. Compute the standard error of the estimate and interpret.
e. Compute the correlation coefficient and interpret.
f. Test the significance of the estimated slope parameter at the 1% level.
h. Test the claim that the slope parameter is equal to 1.
10. A marketing manager with Nexclor Industries, Inc. engaged the services of a
consultant to develop a multiple regression model to predict sales from advertising
expenditure and market share. Data were collected for ten periods and are presented in
the accompanying table. Sales are measured in thousand of dollars, as are advertising
expenditures, and market shares are given as percentage.
Advertising Expenditure
4.3
4.0
4.1
4.6
5.5
4.5
4.3
2.8
2.6
3.1
Sales
10.8
12.6
8.3
9.2
11.1
10.9
7.9
11.6
8.2
9.0
Market Share
26.2
32.2
17.3
16.7
18.9
13.2
14.4
27.1
20.8
22.0
Computer Output
ANOVA
Source
DF
SS
MS
F
Signif. F
________________________________________________________________________
Regression
2
14.858
7.429
-.035
Residual
-------------Total
9
24.144
________________________________________________________________________
________________________________________________________________________
Predictor
Coef
SE
t-ratio
Sig
Constant
1.709
2.737
.62
.553
AE
.912
.461
---.088
Market Share .221
.0682
---.014
a.
b.
c.
d.
e.
f.
g.
h.
State the regression equation.
Interpret the coefficients of the model.
What is the coefficient of determination? Explain its meaning.
What is the predicted value of sales given that advertising is 5 and market
share is 25?
Test the hypothesis that market share is positively related to sales.
Test the claim that each of the slope coefficients is equal to unity.
Test the overall significance of the model.
Can we make a statement that advertising expenditure does not have any
impact on sales?
** Review all the homework problems, problems in the lecture note and quizzes. Then
solve this worksheet. Good Luck!!!