SCENARIO 12-1
a Large National Bank Charges Local Companies for Using

question 209

Multiple Choice

SCENARIO 12-1
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: $$Y _ { i } = \beta _ { 0 } + \beta _ { 1 } X _ { i } + \varepsilon _ { i }$$
Theresultsofthesimplelinearregressionareprovidedbelow.
$$\bar { I } = - 2,700 + 20 X , S _ { Z X } = 65 \text {, two-tail } p \text { value } = 0.034 \text { (for testing } \beta _ { 1 } \text { ) }$$
-Referring to Scenario 12-1, interpret the estimate of $\sigma$ , 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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