7. 1. Describe the association between “DJIA price” and “Years
Since 1930”.
There is a strong positive linear relationship between the two
variables
8. 2. What is the equation for your linear model? (Use
descriptive variables)
Dow price=125.3(since 1930)-2.4425
3. Interpret the slope of the line in context.
As the “years since” increases the “Dow Price” also
increases.
4. Does the y-intercept of your model have a meaningful
interpretation or is it just a hypothetical base value?
Explain.
The y-intercept is the Dow price over 80 years. It is a
meaningful interpretation these are numbers from the
stock market there is always a meaning behind those
numbers.
9. 5. Look at the residuals plot for your linear
model. Do you have any concerns about
predictions made by your
model? Explain.
No, the residual plot looks exactly like
the linear model the only difference is the
direction they are facing.
10. 6. What is the equation of your new model? (Use descriptive
variables)
Transformation Dow price=0.02707(since 1930)-50.38
7. Interpret the slope of the line in context.
• As the “years since” increases the “Dow Price” also
increases.
8. This time, does the y-intercept of your model have a meaningful
interpretation? Explain.
• Yes it’s the same data it’s just a transformation of the data
11. 9. The residuals plot for your
transformed model still doesn’t look
perfect, but has it improved? How
do you feel about the
appropriateness of your new
model?
• It has improved. Its looks like the
linear model so it’s appropriate to
use.
12. Collection 1
Transformation_Dow_Price
Year 0.972085
S1 = correlation
10. What is the correlation for your transformed data? What does this indicate about the
association?
The correlation is 0.97 there is a strong positive association
11. What is R2 for your transformed data? Interpret this value in context.
R2 is 0.94 and that tells us that 94% of the variation in y is explained by the variation in x
12. Use your model to make a prediction about the Dow price in July of 2012.
The predicted Dow price for July 2012 is 252101.1575
13. You will most likely retire sometime between 2040 and 2050. What does your model predict
for the Dow price in 2045? Comment on the appropriateness of this prediction.
• The predicted Dow price for 2045 is 256236.0575 that prediction is fairly appropriate based on
the fact that as the years go by the predicted Dow price increases.
13. 14. What is the equation of the exponential model that Microsoft
Excel fit to the original data?
ln Dow price= 0.0623(x)+4.3
15. Use the exponential model to make a prediction about the Dow
price in 2012. Compare it to the prediction made by your
model. Are they close?
The prediction made by the exponential model is 129.6476. No
they are not close.
16. Calculate the y-intercept of your model and the y-intercept of the
exponential model. Are they close? Are these predictions lower
or higher than the actual Dow price on that date?
• Y intercept for linear model (-244250)
• Y intercept for exponential model (116)
• They are not close
• These predictions are lower than the actual Dow price
14. 17. Recently, concerns about the U.S. economy, unemployment
rate, national debt, foreign relations, the world economy,
financial troubles in countries like Greece and China, climate
change, and population expansion, among others have led
many to question whether common stocks will continue to
grow at 10-12% as we move into the future. Soon, you will
have finished college, secured a position in a fulfilling
career, and started earning a rewarding salary. You, too, will
have to make decisions about the best way to invest your
hard earned money in order to insure that you have a healthy
nest egg to retire on. You’ve just studied the trend of the
broader market over an 80-year period that included
numerous wars, periods of political unrest, economic
recessions, energy crises, population shifts, and corporate
scandals (just to name a few). So, are you convinced? How
do you feel about the strength of this trend? Will the market
continue to reward you the way it rewarded long-term
investors of the previous century? Or, will these new
troubling developments send you seeking other methods of
investment? Explain.
I am convinced. Even with the new
troubling developments I feel that there
will still be a strong trend in the future
because this isn’t the first time that there
has been problems facing the economy.
The market is never down for to long and
I am confident that it will continue to
reward myself and future investors like it
has for the previous.
