Use the Data Provided in the Table Below to Answer

question 11

Essay

Use the data provided in the table below to answer the question. The table shows city size and annual grocery expenditures for eight families. City size is in thousands and expenditures is in hundreds of dollars.

-Suppose each of these families is given a grocery credit of $100, therefore reducing expenditures in the table by one unit (since this variable was recorded in hundreds of dollars). Estimate the new correlation with city size. What happens to the correlation when a constant is added (in this case - 100 dollars is added to each number)? Explain your reasoning.

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Definitions:

Coupon Rates

The coupon rate is the annual interest rate paid on a bond, expressed as a percentage of the face value.

Similar Risk

Refers to investments or assets that have comparable levels of uncertainty and potential for financial loss or gain.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets, integrating different sources of finance weighted by their proportional usage.

Costs of Equity

The return that shareholders require for investing in a company's equity, effectively the cost to the company of raising equity capital.