Stock Market Performance: the Dow Jones Industrial Average (DJIA) and the Standard & Poor's 500 (S & P 500) indexes are used as measures of the overall movement in the Stock market. The DJIA is based on the price movements of 30 large companies; the S & P 500 is an index composed of 500 stocks. Some say the S & P 500is a better measure of the stock market performance because it is broad-based. The closing price for the DJIA and the S & P for 15 weeks, of a previous year follow (Barrow's website).
a. Develop a scatter diagram with DJIA as the independent variable.
b. Develop the estimated regression equation.
c. Test for a significant relationship. 
d. Did the estimated regression equation provide a good fit? Explain.
e. Suppose that the closing price for DJIA is 13,500. Predict the closing for the S & P 500.
f. Should we be concerned that the DJIA value of 13,500 used to predict the S & P 500 value in part (e) is beyond the range of the data used to develop the estimated regression equation?
Stock Market Performance: the Dow Jones Industrial Average (DJIA) and the Standard & Poor's 500 (S & P 500) indexes are used as measures of the overall movement in the Stock market. The DJIA is based on the price movements of 30 large companies; the S & P 500 is an index composed of 500 stocks. Some say the S & P 500is a better measure of the stock market performance because it is broad-based. The closing price for the DJIA and the S & P for 15 weeks, of a previous year follow (Barrow's website).
a. Develop a scatter diagram with DJIA as the independent variable.
b. Develop the estimated regression equation.
c. Test for a significant relationship.
d. Did the estimated regression equation provide a good fit? Explain.
e. Suppose that the closing price for DJIA is 13,500. Predict the closing for the S & P 500.
f. Should we be concerned that the DJIA value of 13,500 used to predict the S & P 500 value in part (e) is beyond the range of the data used to develop the estimated regression equation?
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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.
