01:960:285 Lecture Notes - Lecture 29: Null Hypothesis, Statistical Hypothesis Testing, Dependent And Independent Variables
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The following data show Morning's Fair Value estimate and the Share Price for 28 companies. Fair Value is an estimate of a company's value per share that takes into account estimates of the company's growth, profitability, riskiness, and other factors over the next five years (Morningstar Stocks 500, 2008 edition).
Company | Fair Value ($) | Share Price ($) |
Air Products and Chemicals | 80 | 98.63 |
Allied Waste Materials | 17 | 11.02 |
America Mobile | 83 | 61.39 |
AT & T | 35 | 41.56 |
Bank of America | 70 | 41.26 |
Barclays | 68 | 40.37 |
Citigroup | 53 | 29.44 |
Costco Wholesale Corp | 75 | 69.76 |
Covidien | 58 | 44.29 |
Darden Restaurants | 52 | 27.71 |
Dun & Bradstreet | 87 | 88.63 |
Equifax | 42 | 36.36 |
Gannett Co. | 38 | 39.00 |
Genuine Parts | 48 | 46.30 |
GlaxoSmithKline PLC | 57 | 50.39 |
Iron Mountain | 33 | 37.02 |
ITT Corporation | 83 | 66.04 |
Johnson & Johnson | 80 | 66.70 |
Las Vegas Sands | 98 | 103.05 |
Macro vision | 23 | 18.33 |
Marriot International | 39 | 34.18 |
Nalco Holding Company | 29 | 24.18 |
National Interstate | 25 | 33.10 |
Portugal Telecom | 15 | 13.02 |
Qualcomm | 48 | 39.35 |
Royal Dutch Ltd. | 87 | 84.20 |
SanDisk | 60 | 33.17 |
Time Warner | 42 | 27.60 |
(a) Develop the estimated regression equation that could be used to estimate the share price given the fair value.
(b) At the 0.05 level of significance, is there a significant relationship between the two variables.
(c) Use the estimated regression equation to predict the share price for a company that has a fair value of $50.
(d) Do you believe the estimated regression equation would provide a good prediction of the share price? Use R2 to support your answer.