Question #8
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 3
Status: Unattempted
Question
Henry Hilton, CFA, is undertaking an analysis of the bicycle industry. He hypothesizes that bicycle sales (SALES) are a function of three factors: the population under 20 (POP), the level of disposable income (INCOME), and the number of dollars spent on advertising (ADV). All data are measured in millions of units. Hilton gathers data for the last 20 years and estimates the following equation (standard errors in parentheses): SALES = 0.000 + 0.004 POP + 1.031 INCOME + 2.002 ADV (0.113) (0.005) (0.337) (2.312) For next year, Hilton estimates the following parameters: (1) the population under 20 will be 120 million, (2) disposable income will be $300,000,000, and (3) advertising expenditures will be $100,000,000. Based on these estimates and the regression equation, what are predicted sales for the industry for next year?
Answer Choices:
A. $656,991,000
B. $509,980,000
C. $557,143,000
Explanation
Predicted sales for next year are:
SALES = α + 0.004 (120) + 1.031 (300) + 2.002 (100) = 509,980,000.