SCENARIO 13-1
a Large National Bank Charges Local Companies for Using

question 199

Multiple Choice

SCENARIO 13-1
A large national bank charges local companies for using their services.A bank official reported the results of a regression analysis designed to predict the bank's charges (Y) -- measured in dollars per month -- for services rendered to local companies.One independent variable used to predict service charges to a company is the company's sales revenue (X) -- measured in millions of dollars.Data for 21 companies who use the bank's services were used to fit the model:
Y_i = $\beta$ ₀ + $\beta$ ₁ X_i + $\varepsilon$ _i
The results of the simple linear regression are provided below.
? = -2,700 +20 X ,S_YX = 65,two-tail p value = 0.034 (for testing $\beta$ ₁)
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-Referring to Scenario 13-1,interpret the estimate of ?,the standard deviation of the random error term (standard error of the estimate) in the model.

• A)About 95% of the observed service charges fall within $65 of the least squares line.
• B)About 95% of the observed service charges equal their corresponding predicted values.
• C)About 95% of the observed service charges fall within $130 of the least squares line.
• D)For every $1 million increase in sales revenue,we expect a service charge to increase $65.

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Definitions:

Administrative Expense

Overhead or general expenses related to the administration of a business, not directly tied to any specific department or product.

Expected Net Income

The projected profit of a business after all expenses and taxes have been deducted from total revenue.

Sales Commission

A fee paid to sales personnel, often calculated as a percentage of the sales they generate.

Machine-Hours

A unit of measure for the amount of work or operation time a machine has completed or is expected to complete.