A Study of the Top 75 MBA Programs Attempted to Predict

question 60

Multiple Choice

A study of the top 75 MBA programs attempted to predict the average starting salary (in $1000's) of graduates of the program based on the amount of tuition (in $1000's) charged by the program. The results of a simple linear regression analysis are shown below: Least Squares Linear Regression of Salary

$\begin{array} { l r c c l }\text { Predictor}\\ \text { Variables } & \text { Coefficient } & \text { Std Error } & \mathbf { T } & \mathbf { P } \\ \text { Constant } & 18.1849 & 10.3336 & 1.76 & 0.0826 \\ \text { Size } & 1.47494 & 0.14017 & 10.52 & 0.0000 \\ & & & \\ \text { R-Squared } & 0.6027 & \text { Resid. Mean Square (MSE) } & 532.986 \\ \text { Adjusted R-Squared } &0.5972 & \text { Standard Deviation } & 23.0865 \end{array}$

The model was then used to create 95% confidence and prediction intervals for y and for E(Y) when the tuition charged by the MBA program was $75,000. The results are shown here:

95% confidence interval for E(Y) : ($123,390, $134,220)
95% prediction interval for Y: ($82,476, $175,130)

Which of the following interpretations is correct if you want to use the model to estimate E(Y) for all MBA programs?

• A) We are 95% confident that the average starting salary for graduates of a single MBA program that charges $75,000 in tuition will fall between $82,476 and $175,130.
• B) We are 95% confident that the average starting salary for graduates of a single MBA program that charges $75,000 in tuition will fall between $123,390 and $134,220.
• C) We are 95% confident that the average of all starting salaries for graduates of all MBA programs that charge $75,000 in tuition will fall between $82,476 and $175,130.
• D) We are 95% confident that the average of all starting salaries for graduates of all MBA programs that charge $75,000 in tuition will fall between $123,390 and $134,220.

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Definitions:

Total Income

The sum of all revenues and gains that a person or business receives over a period of time, before any expenses are subtracted.

Average Rate of Return

A metric that determines the earnings from an investment by dividing the mean yearly profit by the cost of the initial investment.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal annual amounts.

Average Rate of Return

A metric used to assess the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.