6. A large national bank charges local companies for using its services. A bank

Question

6. A large national bank charges local companies for using its services. A bank official reported the results of a regression analysis designed to predict the banks charges (y), measured in dollars per month, for services rendered to local companies. One independent variable used to predict service charge to a company is the companys sales revenue (x), measured in millions of dollars. Data for 21 companies who use the banks services were used to fit the model, *= -./ -0. Using the method of least squares, the faculty group obtained the following prediction equation *= 20/ 2500. Interpret the estimate of -0, the y-intercept of the line. A) There is no practical interpretation since a sales revenue of $0 is a nonsensical value. B) All companies will be charged at least $2,500 by the bank. C) About 95% of the observed service charges fall within $2,500 of the least squares line. D) For every $1 million increase in sales revenue, we expect a service charge to increase $2,500.

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6. A large national bank charges local companies for using its services. A bank official reported the results of a regression analysis designed to predict the banks charges (y), measured in dollars per month, for services rendered to local companies. One independent variable used to predict service charge to a company is the companys sales revenue (x), measured in millions of dollars. Data for 21 companies who use the banks services were used to fit the model, *= -./ -0. Using the method of least squares, the faculty group obtained the following prediction equation *= 20/ 2500. Interpret the estimate of -0, the y-intercept of the line.

Answer: A) There is no practical interpretation since a sales revenue of $0 is a nonsensical value.

B) All companies will be charged at least $2,500 by the bank.

C) About 95% of the observed service charges fall within $2,500 of the least squares line.

D) For every $1 million increase in sales revenue, we expect a service charge to increase $2,500.

Note: In this case, there is no meaning in interpretation of intercept when companys sales revenue (x) is 0.

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