Suppose There Is Significant Correlation Between Two Variables

question 41

Essay

Suppose there is significant correlation between two variables. Describe two cases under which it might be inappropriate to use the linear regression equation for prediction. Give
examples to support these cases.

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Definitions:

Par Value

The face value of a bond or the stated value of a stock, not necessarily its market value.

Common Stock

Equity security representing ownership in a corporation, providing voting rights and a share in profits through dividends.

Paid in Excess

Funds received by a company over and above the par value of its stock, often recorded as additional paid-in capital on the balance sheet.

Retained Earnings

Profits that a company retains for reinvestment in its operations, rather than distributing to shareholders as dividends.