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

question 204

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.
$$\hat { Y } = - 2,700 + 20 X , S _ { X X } = 65 , \text { two-tail } p \text { value } = 0.034 \left( \text { for testing } \beta _ { 1 } \right)$$
-Referring to Scenario 13-1, interpret the p-value for testing whether $\beta _ { 1 }$ exceeds 0.

• A) There is sufficient evidence (at the ? = 0.05) to conclude that sales revenue (X) is a useful linear predictor of service charge (Y).
• B) There is insufficient evidence (at the ? = 0.10) to conclude that sales revenue (X) is a useful linear predictor of service charge (Y).
• C) Sales revenue (X) is a poor predictor of service charge (Y).
• D) For every $1 million increase in sales revenue, you expect a service charge to increase $0.034.

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Definitions:

Earnings Per Share

A company's profit divided by its number of common outstanding shares, indicating the company's profitability.

Dividend Yield Ratio

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Dividend Payout Ratio

A financial ratio that measures the percentage of a company's net income that is distributed to shareholders as dividends.

Dividends Per Share

The dividend amount that a company pays out to its shareholders for each share owned.