TABLE 13-1 A Large National Bank Charges Local Companies for Using Their

question 134

Multiple Choice

TABLE 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:
Yᵢ = β₀ + β₁Xi + Eᵢ
The results of the simple linear regression are provided below.

-Referring to Table 13-1, interpret the estimate of σ, the standard deviation of the random error term (standard error of the estimate) in the model.

• A) About 95% of the observed service charges fall within $65 of the least squares line.
• B) About 95% of the observed service charges equal their corresponding predicted values.
• C) About 95% of the observed service charges fall within $130 of the least squares line.
• D) For every $1 million increase in sales revenue, we expect a service charge to increase $65.

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Definitions:

Litigation

The process of taking legal action or resolving disputes in court.

Fixed Asset

Long-term tangible assets held for business use and not expected to be converted to cash in the upcoming business cycle.

Damage Repair

The process of fixing or restoring property or items that have been harmed or degraded.

Depreciated

The reduction in the value of an asset over time due to wear and tear or obsolescence.