Question

A financial analyst is examining the relationship between stock prices and earnings per share. She chooses fifteen publicly traded companies at random and records for each the company's current stock price and the company's earnings per share reported for the past 12 months. Her data are given below, with x denoting the earnings per share from the previous year, and y denoting the current stock price (both in dollars). Based o these data, she com putes the leastsquares rearessionline to be y =-0.109 + 0.040x . This line, along with a scatterplot of her data, is shown in Figure 1 Earnings per Current stock price, y (in dollars) 0.73 share, x (in dollars) 31.02 49.03 28.41 13.83 37.91 56.99 58.73 41.65 32.83 42.82 18.89 37.95 21.32 26.74 44.48 1.70 1.40 0.68 1.19 2.20 2.5 .26 1.73 1.67 0.76 1.37 0.47 0.88 1.39 10 20 s Figure

Answer 1

1. more than

2. increase of 0.040 dollars in current stock price

3. 2.71
since from the given data

4. Y-hat = -0.109 + 0.040(58.73) = 2.2402
Answer: 2.24