SCENARIO 13-10
You Worked as an Intern at We Always

question 58

Short Answer

SCENARIO 13-10
You worked as an intern at We Always Win Car Insurance Company last summer.You notice that individual car insurance premiums depend very much on the age of the individual and the number of traffic tickets received by the individual.You performed a regression analysis in EXCEL and obtained the following partial information: $$\begin{array}{l}\begin{array} { l r } \hline { \text { Regression Statistics } } \\\hline \text { Multiple R } & 0.8546 \\\text { R Square } & 0.7303 \\\text { Adjusted R Square } & 0.6853 \\\text { Standard Error } & 226.7502 \\\text { Observations } & 15 \\\hline\end{array}\\\\\text { ANOVA }\\\begin{array}{lrrrrrr} & d f & & \text { SS } & \text { MS } & \text { F } & \text { Significance } F \\\hline \text { Regression } & & 2 & & \text { 835284.6500 } & 16.2457 & 0.0004 \\\text { Residual } & & 12 & 616987.8200 & & & \\\text { Total } & & & 2287557.1200 & & & \\\hline\end{array}\\\\\begin{array} { l r r r r r r } \hline & \text { Coefficients } & \text { Standard Error } & { t \text { Stat } } & \text { P-value } & \text { Lower 99\% } & { \text { Upper 99\% } } \\\hline \text { Intercept } & 821.2617 & 161.9391 & 5.0714 & 0.0003 & 326.6124 & 1315.9111 \\\text { Age } & - 1.4061 & 2.5988 & - 0.5411 & 0.5984 & - 9.3444 & 6.5321 \\\text { Tickets } & 243.4401 & 43.2470 & 5.6291 & 0.0001 & 111.3406 & 375.5396 \\\hline\end{array}\end{array}$$
-Referring to SCENARIO 13-10, the estimated mean change in insurance premiums for every 2 additional tickets received is .

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Definitions:

Discount Rate

Discount Rate is the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Mutually Exclusive

Situations or events that cannot occur at the same time; choosing one option excludes the choice of another.

Cash Flows

The total sum of money transfers both incoming and outgoing in a firm, majorly affecting its financial readiness.

Profitability Index (PI)

The present value of an investment’s future cash flows divided by its initial cost; also benefit/cost ratio.