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TREVOR WEGNER
SOLUTIONS MANUAL
www.jutaacademic.co.za
TREVOR WEGNER
Applied Business Statistics: Methods and Excel-based Applications: Solutions Manual
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CHAPTER 1
STATISTICS IN MANAGEMENT
1.1 It is a decision support tool. It generates evidence based information through analysis of
data to inform management decision making.
1.2 Descriptive statistics summarises (profiles) sample data; inferential statistics generalises
sample findings to a broader population (to estimate values or confirm relationships).
1.3 Statistical modelling is explores and quantifies relationships between variables for
estimation or prediction purposes.
1.4 Data quality is influenced by: (i) Data source; (ii) Data collection method; and (iii) Data type
1.5 Different statistical methods are valid for different data types.
1.6 In data preparation, consider (i) Data relevancy; (ii) Data cleaning; and (iii) Data enrichment.
---ooOoo---
CHAPTER 2
Exercise 2.3 Cross-tabulation table (or joint frequency table; or two-way pivot table).
Magazine Count %
True Love 95 19%
Seventeen 146 29%
Heat 118 24%
Drum 55 11%
You 86 17%
Total 500 100%
(b) Interpretation
Seventeen is the most popular teenager magazine (29% of female teenager prefer it).
Almost a quarter of the female readers surveyed prefer reading Heat (24%), while the least
preferred magazine is Drum with only 11% of female magazine readers preferring it.
Exercise 2.7 File: X2.6 - magazines.xlsx
Magazine Count %
True Love 95 19%
Seventeen 146 29%
Heat 118 24%
Drum 55 11%
You 86 17%
Total 500 100%
35%
29%
30%
24%
25%
19%
20% 17%
15% 11%
10%
5%
0%
40
35
35
30 27.5
25 22.5
D A A
20 23% 35%
15 B
15 C C
15% B
10 D
27%
5
0
A B C D
Exercise 2.9 File: X2.9 - office rentals.xlsx
(a) and (b) Numerical Frequency Distribution and Cumulative Frequency Distribution
(c) (i) 13.3% of all office space costs less than or equal to R200 / m2
(ii) 70% of all office space costs at most R300 / m²
(iii) 10% of all office space costs more than R350 / m²
(iv) 9 office buildings have rentals between R300 and R400 / m²
Exercise 2.10 File: X2.10 - storage dams.xlsx
17% Wemmershoek
47% 10% Steenbras
Voelvlei
26% Theewaterskloof
40.0
35.0
30.8
30.0
25.6
% of consumers
25.0
20.0 18.0
15.2
15.0
10.4
10.0
5.0
0.0
Liqui Fruit Fruiti Drink Yum Yum Fruit Quencher Go Fruit
45, 18%
Liqui Fruit
77, 31%
Fruiti Drink
26, 10% Yum Yum
Fruit Quencher
(c) 56.4% of the sampled consumers prefer either Yum Yum or Go Fruit.
Exercise 2.12 File: X2.12 - annual car sales.xlsx
120000
96959
100000
88028
80000 74155
63172 62796
60000 51724
37268
40000
25354
20000
BMW, Toyota
10.4 Toyota, 19.4 Nissan
MBSA, 7.5
Volkswagen
Delta
Nissan, 12.6
Ford, 14.8 Ford
MBSA
Volkswagen,
BMW
Delta, 12.6 17.6
MMI
(c) Total % held by top three manufacturers - Toyota (19.4%), Volkswagen (17.6%)
and Ford (14.8%) - represents 51.8% of the total passenger car market.
Exercise 2.13 File: X2.13 - half-yearly car sales.xlsx
60000
50000
40000
First half
30000
Second half
20000
10000
0
Toyota Nissan VW Delta Ford MBSA BMW MMI
First half 42661 35376 45774 26751 32628 19975 24206 14307
Second half 54298 27796 42254 36045 41527 17293 27518 11047
(b) First half-year best performers: Nissan; Volkswagen; MBSA and MMI
(c) Delta showed the largest % increase from the first half to the second half of 34.7%.
Refer to the above Table for the % Change between First and Second Half-Year Sales.
Exercise 2.14 File: X2.14 - television brands.xlsx
Count of Brands
Brands Total
Daewoo 16%
LG 30.4%
Philips 10.4%
Sansui 24%
Sony 19.2%
Grand Total 100%
% of TV Brands Owned
35%
30.4%
30%
Brands Total 24%
25% Daewood 16%
20% LG 30.4% 19.2%
Philips
16% 10.4%
15% Sansui 24%
10.4%
10%
Sony 19.2%
Total 100%
5%
0%
Daewood LG Philips Sansui Sony
(c) Philips is the least preferred brand (preferred by only 10.4% of households surveyed).
(d) The most popular brand is LG that is owned by 30.4% of the households surveyed.
Exercise 2.15 File: X2.15 - estate agents.xlsx
14
12
10
8
15
6 12
4
6 7
2 5
3
0
3 4 5 6 7 8
Total 12 15 6 7 5 3
(c) The most frequently sold number of properties per estate agent was 4.
4 properties each were sold by (15/48) 31.3% of all estate agents
(d) The same frequency count table (a) and histogram (b) is produced.
Exercise 2.16 File: X2.16 - fast foods.xlsx
Percentage of Consumers
30.0
24
25.0
19.7
20.0 17.2 17.8
13.8
15.0
%
10.0 7.4
5.0
0.0
KFC St Elmo's Steers Nandos Ocean B Butler's
Firstly produce the categorical frequency table of Food Type Preferences. Sum
the frequency counts of the different food types (e.g. Chicken = 56 + 64 = 120) and
express the total count as a % of the total number of customers (e.g. 120/325 = 36.9%).
Food type %
Chicken 36.9
Pizza 41.8
Burger 13.8
Fish 7.4
Consumer preference (%) by Food Type
Fish, 7.4
Burger, 13.8
Chicken
Chicken,
36.9 Pizza
Burger
Pizza, 41.8
Fish
(a) Two-way Pivot Table - Counts, Row % (by Airline), Column % (by Passenger)
Passenger
Airline Data Business Tourist Grand Total
Comair Count of Passenger 12 8 20
Row % 60.0% 40.0% 100%
Column % 33.3% 23.5% 28.6%
Total % 17.1% 11.4% 28.6%
Kulula Count of Passenger 4 16 20
Row % 20.0% 80.0% 100.0%
Column % 11.1% 47.1% 28.6%
Total % 5.7% 22.9% 28.6%
SAA Count of Passenger 20 10 30
Row % 66.7% 33.3% 100.0%
Column % 55.6% 29.4% 42.9%
Total % 28.6% 14.3% 42.9%
Total Count of Passenger 36 34 70
Total Row % 51.4% 48.6% 100%
Total Column % 100% 100% 100%
Total Total % 51.4% 48.6% 100%
70% 0.67
0.6
60%
50%
0.4
40% 0.33 Business
30% Tourist
0.2
20%
10%
0%
Comair Kulula SAA
Business 0.6 0.2 0.666666667
Tourist 0.4 0.8 0.333333333
30
25 23
20
No. of Cars
15
15
10
10 7
5
5
0
1 2 3 4 5
Occupants
(b) (iii) "Less-Than" Ogive (see (a) above) and Cumulative Frequency Polygon
70
60 60
53
50 48
No. of Cars
40 38
30
23
20
10
0
1 2 3 4 5
No. of occupants
(c) (i) 38.3% of motorists travel alone.
(ii) 36.7% of vehicles have 3 or more occupants
(iii) 63.3% of vehicles have no more than 2 occupants.
Exercise 2.19 File: X2.19 - courier trips.xlsx
(a) Random variable - distance travelled (in kms) per courier trip
Data type - numerical, continuous, ratio-scaled
18
16 15
14
12
12
No. of trips
10 9
8 7
6
4
4 3
2
0
≤10 11 - ≤15 16 - ≤20 21 - ≤25 26 - ≤30 31 - ≤35
Distance Cum %
100 100
10 8 94
80 15 22
76
Percent of trips
20 52
60 25 76
52
30 94
40
35 100
20 22
8
0
10 15 20 25 30 35
(iv) Reading off the Cumulative % Frequency Table (or Polygon) above
52% of trips were no more than 20 km from the depot.
(v) The longest 24% of trips were above 25 km.
(b) (i) (ii) Numeric % Frequency Distribution (and (d) the Ogive)
16 15
14 13
12
no. of motorists
10
8 7 7
6 5
4
2
2 1
0
≤300 301 - 400 401 - 500 501 - 600 601 - 700 701 - 800 800+
Fuel bill (in Rands)
(c) 14% (7 motorists) spend between R500 and R600 per month on fuel.
(e) From (d), approx. 77% of motorists spend less than R550 per month on fuel.
(f) From (a) (and (d)), 30% (15 motorists) spend more than R500 per month on fuel.
Exercise 2.21 File: X2.21 - car sales.xlsx
80
70
60
50
units sold
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Quarters
(a) Trend Line graphs of Market Shares (%) per car type (VW, Toyota)
25
20
% market share
15
10
0
1 2 3 4 5 6 7 8 9 10
year
(c) Choice of franchise is not clearcut, but suggest choosing Toyota because
of its more consistent (steady) growth rate.
Exercise 2.23 File: X2.23 - defects.xlsx
20
18
no. of defects found per batch
16
14
12
10
8
6
4
2
0
20 30 40 50 60 70
Scatter Graph
Profit Growth (y) and Leverage Ratio (x)
160
140
120
profit growth
100
80
60
40
20
0
30 32 34 36 38 40 42 44 46
leverage ratio
(b) Yes, there is a clear moderate to strong positive linear relationship between
the leverage ratio of a company and its profit growth.
(b) Service companies have a higher average ROI% (11.33%) than mining companies (9.87%).
The volatility of ROI% amongst service companies (2.99%) is far lower than amongst mining companies (4.58%)
By inspection, there is a high overlap of ROI% between the two sectors (based on a two-standard deviation
interval around each sample mean). Thus it is likely that there is no statistically significant difference in
mean ROI% between the two sectors.
Based on shelf position alone, middle shelf positions generate higher average sales (R4.99) than top shelf
(b)
positions (R3.97).
Based on aisle location alone, a front-of-store aisle location generates the highest average sales (R5.58), followed
by a back-of-store aisle location (R4.38).
The lowest average sales occur when the product is displayed in a middle-of-store aisle location (R3.49).
In combination, a front-of-store aisle location on a middle shelf position generates the highest average sales
(R6.08), while a top shelf position in a middle-of-store aisle is the least desirable product location with an average
sales volume of only R2.74.
Sales variability is relatively consistent across aisle locations (0.895 to 1.232) as well as between shelf positions
(1.114 to 1.359).
In combination however, sales volumes show highest variability when the product is positioned in a middle shelf
position in a middle-of-store location (1.387) while the lowest variability in sales volumes occur when positioned in
a top shelf position in a middle-of-store aisle location (0.297).
The large differences in average sales volumes (ranging from R6.08 to R2.74) is evidence of a likley statistically
significant difference in sales volumes due to choice of aisle location and shelf positioning.
Recommendation: A middle shelf position in a front-of-store ailse location is the most preferred product
(c)
display location.
Exercise 2.27 File: X2.27 - property portfolio.xlsx
100 87 100.0%
80 80.0%
Frequency
60 60.0%
46
40 31 40.0%
22
20 12 20.0%
4 7 4
0 1 1
0 0.0%
-5 -2.5 0 2.5 5 7.5 10 12.5 15 17.5 20 More
Bin NP%
(f) Recommendations: Dispose of the worst performing industrial properties in both regions A and B and
purchase more commercial properties in region B followed by retail properties in region A.
CHAPTER 3
Exercise 3.3 Statements (c) and (f). The mode would be more appropriate (both are categorical)
Exercise 3.4 (a) False (b) False (c) True (d) False (e) False
The new median mass will depend only on the masses of parcels in the 3rd and 4th
ordered positions out of the 6 positions (after adding the extra parcel).
Also, the rank order position of this extra parcel's mass is unknown. It could be the
4th, 5th or 6th ranked mass, but this depends on the masses of parcels that are heavier
than the current median mass.
If the 4th ranked mass is also equal to 6.5 kg, then the new median will not increase.
If, on the other hand, the 4th ranked mass is greater than 6.5 kg, then the median will
increase. Therefore the only statement that can be made with complete certainty is (c),
(i.e. that it is impossible for the new median mass to be less than it was.)
Exercise 3.5 Correct method is (b). Use the formula for the arithmetic mean (Formula 3.1)
By definition, Mean = Σx / n
Using Excel
68.3% of all hand luggage is likely to weigh between 8.85 kg and 12.29 kg.
(This corresponds to one standard deviation limits about the mean).
(b) Range = 36 - 16 = 20
The range of sales between the worst and best months was 20 bicycles.
(i.e. In the worst sales month, 16 were sold; in the best month, 36 were sold.
th
(c) Lower Quartile (Q1) = 18 (2.5 position)
25% of monthly bicycle sales were less than or equal to 18.
Or: No more than 18 bicycles per month were sold in 25% of the months.
Note: Using Excel : QUARTILE(data values,1) = 18.25
Interpretation
Monthly bicycle sales range between 16 and 36.
The median monthly sales is 22. The positive skewness shows a wider spread
of monthly sales toward the months of high sales.
(f) Opening monthly stock level = 23.6 + 6.603 = 30.2 bicycles in stock
If orders = 30, then the dealer will have sufficient bicycle stock to meet demand.
Exercise 3.9 File: X3.9 - setting times.xls
(c) No, since the consistency index is greater than 10%, this consignment
will not be approved for dispatch to the clients.
Exercise 3.10 File: X3.10 - wage increases.xls
Wage increases
(a) Mean 6.43 '=AVERAGE(data values)
Standard Error 0.346
Median 6.25 '=MEDIAN(data values)
Mode 5.8
(b) Standard Deviation 1.386 '=STDEV(data values)
Sample Variance 1.921 '=VAR(data values)
Kurtosis 0.196
Skewness -0.286
Range 5.4
Minimum 3.4
Maximum 8.8
Sum 102.9
Count 16
Group 1 Group 2
Mean 76 64
Variance 110 88
Sample size 34 26
Group 1 Group 2
Coefficient (10.488/76)% (9.381/64)%
of Variation = 13.8 14.66
Interpretation
Both groups performed consistently well. The difference in CV% measures is marginal.
However, group 1 trainees performed marginally more consistently than group 2 trainees.
Exercise 3.12 File: X3.12 - meal values.xls
Meal values
(b) Mean 1119/20 = = R55.95 Mean 55.95
Standard Error 3.20
∑(deviation)² = 3902.95 Median 53
n= 20 Mode 44
Standard Deviation 14.33
Variance = 3902.95/(20-1) = 205.42 Sample Variance 205.42
Std deviation = √205.42 = 14.33 Kurtosis 0.26
Skewness 0.74
Range 55
(c) Median Minimum 35
th th
Average the Rand values in 10 and 11 positions. Maximum 90
= (51+55)/2 = R53 Sum 1119
Half off the meals were valued at R53 or less. Count 20
Ranked Meal
Position Value
1 35
2 36
3 44
4 44
5 44
6 47
7 48
8 48
9 50
10 51 Median is midpoint between
11 55 these two middle values (R51 and R55)
12 56
13 58
14 62
15 65
16 65
17 69
18 72
19 80
20 90
(d) Mode R44 occurs 3 times (see grouped ranked values in (c) above).
(e) There is moderate positive skewness caused by two high meal values (i.e. R80 and R90).
Hence recommend the median as the most representative central location meal value.
Exercise 3.13 File: X3.13 - days absent.xls
(a) Mean = 237/23 10.3 days absent (Using Data Analysis in Excel )
Interpretation
On average, an employee is absent for 10.3 days over this 9-month period.
Half the employees were absent for up to 9 days.
The most common number of days absent was 5 (or 6, or 10 or 15) days
(c) Average: On average, each furniture retailer has a bad debt % of 4.665%.
Median: 50% of furniture retailers have a bad debt % of 5.4% or less.
Since the mean < median, there is evidence of negative skewness.
Hence propose the use of the median as the representative central value.
(d) There are two modal values (2.2% and 5.7%) both occurring with frequency of 2.
This makes the mode an unreliable measure of central location.
3
Then Skp = (17*(-31.2227))/((17-1)*(17-2)*1.85 ) = -0.35
(g) The average % bad debts is 4.665% while the median % bad debts is 5.4%. Since
there is moderate negative skewness (Skp = -0.35), the median should be used
as the representative central value. Thus, since the median % of bad debts,
is above 5% (median = 5.4%), an advisory note should be sent out.
Exercise 3.15 File: X3.15 - fish shop.xls
Interpretation The average daily turnover for the fish shop is R1390.80 per day.
Interpretation 50% of families spend no more than 33.125% of their income on groceries.
Interpretation 25% of families spend no more than 24.64% of their income on groceries.
Interpretation 25% of families spend more than 41.5% of their income on groceries.
Exercise 3.17 File: X3.17 - equity portfolio.xls
Interpretation
The average annual % escalation rate in office rentals is 11.955%
Interpretation
The average annual % increase in the sugar price (per kg) has been 6.456%
(b) The geometric mean is more appropriate since the base value of each
percentage change is different .
Each year's percentage change is based on the previous year's sugar price.
Exercise 3.21 File: X3.21 - water usage.xls
water usage
(a) Mean 21.2
Standard Error 1.751
Median 19.5
Mode 25
(b) Standard Deviation 9.590
Sample Variance 91.959
Kurtosis 1.744
Skewness 1.165
Range 42
Minimum 8
Maximum 50
Sum 636
Count 30
Interpretation - quartiles
25% of households consume at most 15 kl of water per month.
The 25% of heavy water consumers use at least 25.75 kl per month.
(a) Random variable - cost of a veal cordon bleu meal at a Durban restaurant
Data type - numerical, continuous, ratio-scaled.
Interpretation
On average, a patron can expect to pay R61.25 for a veal cordon bleu meal
at a Durban restaurant.
50% of Durban restaurants charge no more than R59 for a veal cordon bleu meal.
(c) There are two modal values (R48 and R55). Both occur with a frequency of 3.
It is a misleading value because of its low frequency of occurrence.
Note: Excel only shows the first occurrence of a modal value (i.e. R48) in its output.
(f) Both measures indicate that there is moderate-to-high positive skewness, hence
the median cost of R59 would be a more representative measure of central location.
fuel bill
(i) Mean Mean 418
Standard Error 13.128
(ii) Median Median 398
Mode 350
(iv) Standard deviation Standard Deviation 113.693
(iii) Variance Sample Variance 12926.054
Kurtosis -0.503
(v) Skewness Skewness 0.601
Range 420
Minimum 256
Maximum 676
Sum 31350
Count 75
(i) Total amount of fuel consumed monthly by Paarl motorists for commuting to work:
Expected Total fuel consumed (in litres) = R10450000/10 = 1 045 000 litres
(Expected total monthly cost / cost per litre)
Exercise 3.24 File: X3.24 - service periods.xls
service periods
(i) Mean Mean 7
Standard Error 0.384
(ii) Median Median 6
Mode 6
(iii) Std Dev Standard Deviation 3.838
Sample Variance 14.727
Kurtosis -0.437
(iv) Skewness Skewness 0.553
Range 15
Minimum 1
Maximum 16
Sum 700
Count 100
Interpretation - skewness
There is a moderate positive skewness (Skp = 0.553) in length of service periods,
meaning that a few engineers have long service periods with their company.
They meet the guidelines for "new blood" (21,2%) ,but have
far fewer "experienced" members (only 10%) than their guidelines require.
Exercise 3.25 File: X3.25 - dividend yields.xls
Dividend yields
(i) Mean Mean 4.273
Standard Error 0.218
(ii) Median Median 4.1
(iii) Mode Mode 2.8
(iv) Std Dev Standard Deviation 1.444
Sample Variance 2.084
Kurtosis -0.359
(v) Skewness Skewness 0.259
Range 6.1
Minimum 1.5
Maximum 7.6
Sum 188
Count 44
Std dev 68.3% of all dividend yields lie between 2.83% and 5.72%
Similarly for 2 and 3 std devs from the mean
(d) the Mean (Average) as there is minimal skewness present in the data.
The very slight positive skewness can be seen from the longer tail
on the right of the box plot. It implies a few companies have achieved
significantly higher dividend yields than the majority of the sample.
(h) Minimum dividend yield achieved by the top performing 10% of companies
6.17% =PERCENTILE(data range,0.90)
The top 10% of companies achieved at least a dividend yield of 6.17%
(i) % of companies who did not declare more than a 3.5% dividend yield
Cumulative frequency up to upper limit of 3.5 = (3 + 11) = 14.
% Cumulative = 14 / 44 % = 31.8%
Almost 1/3 (31.8%) of companies did not declare more than a 3.5% dividend yield.
Exercise 3.26 File: rosebuds.xls
selling price
(i) Mean 60.312
Standard Error 0.319
(iii) Median 59.95
Mode 60.6
(ii) Standard Deviation 3.188
Sample Variance 10.160
Kurtosis 1.770
(iv) Skewness 0.932
Range 18.3
Minimum 55.2
Maximum 73.5
Sum 6031.2
Count 100
Interpretation
Mean: The average selling price of rosebuds is 60.312 cents.
Median: 50% of rosebuds sold for no more than 59.95c.
Std dev: 68.3% of rosebud unit prices are likely to lie between 57.12c and 63.5c.
Skewness: There is excessive positive skewness (one very high unit price)
(e) The highest unit selling price of the cheapest 25% of sales is 57.7 cents (i.e. Q1)
(f) The minimum unit selling price of the highest-priced 25% of sales is 62.45 cents (i.e. Q3)
Overall interpretation of (a), (d), (e) and (f)
Unit selling prices ranged from 55.2c to 73.5c where 50% of the selling prices
were above 59.95c. 25% of sales were below 57.7c while the most expensive 25%
of unit selling prices were above 62.45c.
Interpretation
The distribution of unit selling prices of rosebuds is skewed to the right.
There is also one extremely high unit selling price of 73.5c which can be
considered an outlier.
Overall, unit selling prices of rosebuds ranged between 55.2c and 73.5c.
25% of unit selling prices lay below 57.7 c (i.e. lower quartile); while
the middle 50% of unit selling prices ranged from 57.7c to 62.45c.
The "best" 25% of unit selling prices achieved were above 62.45c (Q3).
Finally, the median (middle) unit selling price achieved was 59.95c.
Mini Case Study 3.27 File: X3.27 - savings balances.xlsx
Number of Clients
801 - ≤1000 4
More 50
4
40
30
21 19
20
10 4 4
0
0 - ≤ 200 201 - ≤ 400 401 - ≤ 600 601 - ≤ 800 801 - ≤1000 More
Savings Intervals
Amongst the female clients, the majority (64%) are single (41/64), while amongst the male clients,
the majority (75%) are married.
Thus they are attracting mainly single females; and married males.
Refer to 1 (d) (Breakdown Table of Average Savings by Gender and Marital Status)
Single females are saving the most (average of R563,7) while single males are the worst savers with
an average savings balance of only R299.3 (compared to the overall average of R421.9).
Also females save more, on average (R545) than males (R350).
Single bank clients save more, on average (R456.4) than married bank clients (R399.4).
2 (c) Plan of Action by Bank
Bank should target females in general (as they comprise only 37%) of the current client base
but have the largest average balances of all clients.
Single females (23%) in particular should be targetted to attract more high savers to the bank.
They should encourage their main client base - married males - to save more.
Mini Case Study 3.28 File: X3.28 - medical claims.xlsx
No. of Members
30 26
0.9 - 1.3 36 24.0
25
1.3 - 1.7 30 20.0
20
1.7 - 2.1 14 9.3 14
15
2.1 - 2.5 2 1.3 10 6
Above 2.5 1 0.7 5 2 1
150 100 0
Claims Ratio
Mean 0.974 Lower Quartile 0.460
Median 0.996 Upper Quartile 1.421
Mode #N/A
Standard Deviation 0.594
Sample Variance 0.353
Skewness 0.242
Range 2.672
Minimum 0.013
Maximum 2.685
Sum 146.1
Count 150
Age
Marital 26 - 35 36 - 45 46 - 55 Row totals
Married average 1.326 0.915 1.123 1.112
std dev 0.552 0.589 0.629 0.610
minimum 0.147 0.051 0.013 0.013
maximum 2.685 1.989 2.408 2.685
count 23 27 35 85
Single average 0.919 0.474 0.947 0.793
std dev 0.543 0.356 0.500 0.524
minimum 0.014 0.024 0.218 0.014
maximum 1.905 1.262 1.814 1.905
count 36 19 10 65
average 1.078 0.733 1.084 0.974
Column totals std dev 0.577 0.547 0.602 0.594
minimum 0.014 0.024 0.013 0.013
maximum 2.685 1.989 2.408 2.685
count 59 46 45 150
2 (c) There is cause for concern about the financial viability of the Scheme because:
The claims ratio of married members exceed 1 on average
Within the married group, the age groups 26 -35 and 46 - 55 are claiming more than they contribute
The married group represent the majority of members (57%)
The two age groups within the married group represent 69% of all married (and are claiming more than they contribute).
Overall the scheme is operating close to its breakeven of financial non-viability (overall mean claims ratio = 0.974)
There is significant cross-subsidization of the married younger and older members by mostly
the middle-aged single members.
The mangement of this medical scheme needs to review member contributions from the married younger and older members.
CHAPTER 4
Exercise 4.1 P(A) = 0.2 means that an event has a 20% chance of occurring.
Exercise 4.3 The outcome of one event does not influence / nor is influenced
by / the outcome of the other event.
Exercise 4.4 P(A or B) = P(A) + P(B) - P(A ∩ B) = 0.26 + 0.35 - 0.14 = 0.47
(c)
(i) P(Matric) = 50/129 = 38.76%
(ii) P(Section head ∩ Degree) = 5/129 = 3.88%
(iii) P(Dept head / Diploma) = 24/50 = 48%
(iv) P(Division head) = 28/129 = 21.71%
(v) P(Division head U Section head) = (53+28)/129 = 62.79%
(vi) P(Matric U Diploma U Degree) = (50+50+29)/129 = 100%
(vii) P(Degree / Dept head) = 10/48 = 20.83%
(viii) P(Division head U Diploma U both) = (28+50-6)/129 = 55.81%
Department
Age Production Sales Administration Total
<30 60 25 18 103
30-50 70 29 25 124
>50 30 8 35 73
Total 160 62 78 300
(b) No, since outcomes of these two events can occur simultaneously.
(g) No, as outcomes of the two events can occur simultaneously as illustrated in (f) above.
Exercise 4.13
P(F1) = 0.20
(Fail)
(Not fail) P(S2) = 0.85 P(F1 ∩ S2) = 0.20 x 0.85 = 0.17
1.00
Exercise 4.13
P(Y) = 0.30
(Attend)
(Fail) P(F) = 0.20 P(Y ∩ F) = 0.30 x 0.20 = 0.06
1.00
Exercise 4.14
(b) Refer to the end nodes of the Probability Tree to answer question 4.14 (b)
(i) P(Pass and Attended workshop) = P(Y ∩ S) = 0.30 x 0.8 = 0.24 24%
Likely scenarios
(b) P(a given combination of 3 out of 10) = 1/120 = 0.0083 (0,833% chance)
Exercise 4.21
=FACT(4)/(FACT(2)*FACT(2))*FACT(7)/(FACT(4)*FACT(3))
(Using Excel )
=2*FACT(4)/(FACT(2)*FACT(2))*FACT(7)/(FACT(4)*FACT(3))
(Using Excel )
Exercise 4.22 Project Scoping Study Bayes Theorem
Bayes Application Using the Joint Probabilities from the Probability Tree
---ooOoo---
Additional Information
S NS
T 0.28 0.42 0.7 P(T/S) = P(T and S)/P(S)
L 0.24 0.06 0.3 =0.28/(0.28+0.24)
0.52 0.48 1 0.5385
---ooOoo---
Exercise 4.23 Married Couples Sporting Habits Study Bayes Theorem
Bayes Application Using the Joint Probabilities from the Probability Tree
There is a 66,67% chance that a husband plays sport if the wife also plays sport.
---ooOoo---
Additional Information
WS WNS
HS 0.24 0.36 0.6 P(HS/WS) = P(HS and WS)/P(WS)
HNS 0.12 0.28 0.4 =0.24/(0.24+0.12)
0.36 0.64 1 0.6667
---ooOoo---
Exercise 4.24 Airline Departure Times Study Bayes Theorem
Bayes Application Using the Joint Probabilities from the Probability Tree
There is a 64.86% chance that it is Airline A, if the aircraft that has just left, left on time.
---ooOoo---
Additional Information
T L P(A/T) = P(A and T)/P(T)
A 0.48 0.12 0.6 =0.48/(0.48+0.26)
B 0.26 0.14 0.4 0.6486
0.74 0.26 1
---ooOoo---
Exercise 4.25 New Business Venture Study Bayes Theorem
Non
graduate P(S/NG) = 0.65 P(NG and S) = 0.26
P(NG) = 0.4
P(F/NG) = 0.35 P(NG and F) = 0.14
Bayes Application Using the Joint Probabilities from the Probability Tree
There is a 46.15% chance that a NBV was started by a Graduate given that it has failed.
---ooOoo---
Additional Information
S F
G 0.48 0.12 0.6 P(G/F) = P(G and F)/P(F)
NG 0.26 0.14 0.4 =0.12/(0.12+0.14)
0.74 0.26 1 0.4615
---ooOoo---
Exercise 4.26 On-line Airline Tickets Purchase Study Bayes Theorem
non-
e-Ticket P(B/NE) = 0.45 P(NE and B) = 0.27
P(NE) = 0.6
P(NB/NE) = 0.55 P(NB and NB) = 0.33
1
Bayes Application Using the Joint Probabilities from the Probability Tree
There is a 54.24% chance that an e-ticket was bought given that it was bought by a business traveller.
---ooOoo---
Additional Information
B NB
E 0.32 0.08 0.4 P(E/B) = P(E and B)/P(B)
NE 0.27 0.33 0.6 =0.32/(0.32+0.27)
0.59 0.41 1 0.5424
---ooOoo---
CHAPTER 5
PROBABILITY DISTRIBUTIONS
3 (7-3)
(a) (i) n = 7; p = 0,2; x = 3 P(x = 3) = 7C3 (0.2) (0.8) =
0.1147 11.47%
4 (10-4)
(a) (ii) n = 10; p = 0,2; x = 4 P(x = 4) = 10C4 (0.2) (0.8) =
0.0881 8.81%
(b) n = 15 p = 0.15
P(x < 3) = P(x = 0) + P(x = 1) + P(x = 2) =
= 0.0874 + 0.2312 + 0.2857 = 0.6042 =BINOMDIST(2,15,0.15,1)
Exercise 5.6
=BINOMDIST(5,12,0.2,0)
(b) n = 280 p = 0.65 (probability of a pensioner person not being a heavy reader )
Expected number (mean) of "non-heavy" readers = 280 x 0.65 = 182
Exercise 5.11
(b) Note: a = 3 since the mean orders must refer to a given half-day interval (i.e. 6/2 = 3)
-3 1
P(x = 1 / a = 3) = e 3 / 1! = 0.1494 14.94% =POISSON(1,3,0)
(c) Note: a = 14 since the time interval is a given two-day period (i.e. 7 x 2 = 14)
P(x > 20 / a = 14) = 1 - P(x ≤ 20)
= 1 - (P(x = 0) + P(x = 1) + P(x = 2) + …… + P(x = 19) + P(x = 20))
Use Excel only.
=1 - POISSON(20,14,1) = = 1 - 0.9521 = 0.0479 4.79%
Exercise 5.16
(a) P(x > 120) = P(z > (120-80)/20) = P(z > 2) = 0.5 - 0.4772 = 0.0228 2.28%
(b) P(x < 60) = P(z (60-80)/20) = P(z < -1) = 0.5 - 0.3413 = 0.1587 15.87%
(c) P(x > k) = 0.60 Look up area = 0.60 - 0.50 = 0.10 giving z ≈ -0.253
Then x = 80 - 0.253*20 ≈ 74.94 min
(a) P(x < 1) = P(z < (1-3.1)/1.1) = P(z < -1.9091) = 0.5 - 0.4719 = 0.0281 2.81%
(b) (i) P(x > 4) = P(z > (4-3.1)/1.1) = P(z > 0.819) = 0.5 - 0.2939 = 0.2061 20.61%
(b) (ii) P(x > 5.5) = P(z > (5.5-3.1)/1.1) = P(z > 2.182) = 0.5 - 0.4854 = 0.0146 1.46%
(c) P(x < k) = 0.05 Look up area = 0.50 - 0.05 = 0.45 giving z ≈ -1.645
Then x = 3.1 - 1.645*1.1 ≈ 1.29 years
(ii) P(x < 100) = P(z < (100-220)/45) = P(z < -2.667) = 0.5 - 0.4962 = 0.0038 0.38%
(iii) P(x < k) = 0.15 Look up area = 0.50 - 0.15 = 0.35 giving z ≈ -1.038 (approx)
Then x = 220 - 1.038*45 ≈ 173.29 litres
(iv) P(x > k) = 0,20 Look up area = 0.50 - 0.20 = 0.30 giving z ≈ 0.842 (approx)
Then x = 220 + 0.842*45 ≈ 257.89 litres
(a) Normal distribution x ≡ N(1.4; 0.25) Variance = 0.0625 Std dev = 0.25
(i) P(x > 2) = P(z > (2-1.4)/0.25) = P(z > 2.4) = 0.5 - 0.4918 =
0.0082 0.82%
(ii) P(1.2 < x < 1.4) = P((1.2-1.4)/0.25 < z < (1.4-1.4)/0.25) = P(-0.80 < z < 0) =
0.2881 28.81%
(iii) P(x < 0.9) = P(z < (0.9-1.4)/0.25) = P(z < -2.00) = 0.5 - 0.4772 =
0.0228 2.28%
(iv) P(0.5 < x < 1.0) = P((0.5-1.4)/0.25 < z < (1.0-1.4)/0.25) = P(-3.6
0.49984
< z <--1.6)
0.4452
= =
0.0546 5.46%
(b) P(x > 1.8) = P(z > (1.8-1.4)/0.25) = P(z > 1.6) = 0.5 - 0.4452 =
0.0548 5.48%
No. of truck drivers = 120 * 0,0548 = 6,576 drivers 7 drivers (approx)
(c) P(x > 1.7) = P(z > (1.7-1.4)/0.25) = P(z > 1.2) = 0.5 - 0.3849 =
0.1151 11.51%
No. of truck drivers = 360 * 0.1151 = 41.436 drivers 42 drivers (approx)
(a) P(x < 18) = P(z < (18-18.2)/0.7) = P(z < -0.2857) = 0.5 - 0.1124 (approx) = 0.3876
or 38.76%
(b) P(x > k) = 0.15 Look up area = 0.50 - 0.15 = 0.35 giving z ≈ 1.038 (approx)
Then x = 18.2 + 1.038 * 0.7 ≈ 18.927 gm
(a) P(x < 60) = P(z < (60-70)/9) = P(z < -1.11) = 0.5 - 0.3665 = 0.1335 13.35%
(b) P(x > 90) = P(z > (90-70)/9) = P(z > 2.22) = 0.5 - 0.4868 = 0.0132 1.32%
(c) P(50 < x < 60) = P((50-70)/9 < z < (60-70)/9) = P(-2.22 < z < -1.11) =
0.4868 - 0.3665 = 0.1203 12.03%
(d) P(x > 80) = P(z > (80-70)/9) = P(z > 1.11) = 0.5 - 0.3665 = 0.1335 13.35%
No. of customers = 0.1335 * 80 = 10.68 customers
(e) P(z > (80-μ)/9) = 0.05 Look up area = 0.50 - 0.05 = 0.45 giving z ≈ 1.645
Then 1.645 = (80 - μ)/9 giving μ = 80 - 1.645 * 9 = 65.195 min
(e) This answer cannot be computed from the Excel function NORMDIST.
Exercise 5.25 Coffee Dispensing Machine - Cup Fill
(a)
(i) P(x > 235) = P(z > (235-230)/10) = P(z > 0.5) = 0.5 - 0.1915 =
0.3085 30.85%
(ii) P(235 < x < 245) = P((235-230)/10 < z < (245-230)/10) = P(0.5 < z < 1.5) =
0.4332 - 0.1915 =
0.2417 24.17%
(iii) P(x < 220) = P(z < (220-230)/10) = P(z < -1.00) = 0.5 - 0.3413 =
0.1587 15.87%
(b) P(x > k) = 0.15 Look up area = 0.50 - 0.15 = 0.35 giving z ≈ 1.038 (approx)
Then x = 230 + 1.038 * 10 = 240.38 ml
(c) P(z < (220-μ)/10) = 0.10 Look up area = 0.50 - 0.10 = 0.40 giving z ≈ -1.282
Then -1.282 = (220 - μ)/10 giving μ = 220 + 1.282 * 10 = 232.82 ml
(a) P(30 < x < 34) = P((30-28)/4 < z < (34-28)/4) = P(0.50 < z < 1.50) =
0.4332 - 0.1915 = 0.2417
or 24.17%
(b) P(x < 24) = P(z < (24-28)/4) = P(z < -1.00) = 0.5 - 0.3413 = 0.1587
or 15.87%
(c) P(x > k) = 0.60 Look up area = 0.60 - 0.50 = 0.10 giving z ≈ -0.253 (approx)
Then x = 28 - 0.253 * 4 ≈ 26.988 months
(d) P(z < (x-28)/4) = 0.05 Look up area = 0.50 - 0.05 = 0.45 giving z ≈ -1.645
Then -1.645 = (x - 28)/4 giving x = 28 - 1.645 * 4 = 21.42 months
6.3 subset.
6.4 representative.
6.5 Non-probability sampling: sample members are chosen using non-random criteria meaning
that some members of the target population are excluded from being included in the
sample.
Probability sampling: sample members are chosen using random selection processes so that
each target population member stands a chance of being included in the sample.
6.6 Random (probability) sampling methods. Every member of the target population has a
chance of being included in the sample. This is likely to result in a more representative
sample than if a non-probability sampling method was used.
6.9 equal
6.18 95.5%
6.19 Normal
6.20 n = 30 or larger
6.22 Sampling error is the error made when estimating the true population parameter (e.g.
population mean) when using the sample statistic (e.g. sample mean).
CHAPTER 7
Exercise 7.1 To estimate a population parameter value by defining an Interval within which the true
population value is likely to fall at a stated level of confidence.
Exercise 7.2 Use the z-statistic since the population standard deviation, σ is known (Given σ = 8)
Exercise 7.4 Use the t -statistic since the population standard deviation, σ is unknown (Given s = 6)
(a) Manually
x(bar) = 24.4 σ = 10.8 n = 144
Interpretation There is a 95% chance that the interval (22.636 to 26.164) covers
the actual average number of employees per SME in Gauteng.
(a) Manually
x(bar) = 131.6 σ = 25 n = 87
Interpretation
There is a 90% chance that the interval (127.191 to 136.009) covers the
actual average no. of palettes per order received by a sugar mill in Durban.
Interpretation
Total palettes shipped in a year, on average, is likely to be
between 91 577 and 97 926 palettes, with 90% confidence.
Exercise 7.7
(a) Manually
x(bar) = R356 σ = R44 n = 256
Interpretation
There is a 95% chance that the interval (R350.61 to R361.39) covers the
actual average monthly car insurance premium of medium-sized cars.
Interpretation
There is a 90% chance that the interval (R351.48 to R360.52) covers the
actual average monthly car insurance premium of medium-sized cars.
Interpretation
Total monthly premium income, on average, is likely to be between
R1 051 830 and R1 084 170 with 95% confidence.
Exercise 7.8
(a) Manually
x(bar) = 4.985 σ = 0.04 n = 50
Interpretation
There is a 99% chance that the interval (4.97 litres to 4.9996 litres)
covers the actual average volume of paint in all five-litre cans.
(b) Yes, the store owner has statistical evidence to confirm that the average
volume of paint in 5-litre cans is most likely to be below 5 litres.
(a) Manually
x(bar) = 3.8 σ = 0.6 n = 24
Interpretation
There is a 90% chance that the interval (3.599 to 4.001) covers
the actual average inventory turnover rate of all convenience stores.
(a) Manually
x(bar) = 166.2 s = 22.8 n = 21
Interpretation There is a 95% chance that between 155.8 and 176.6 calls, on
average, will be received by the call centre daily.
(b) Manually
x(bar) = 166.2 s = 22.8 n = 21
Interpretation There is a 99% chance that between 152.1 and 180.4 calls, on
average, will be received by the call centre daily.
(c) The 95% confidence interval is more precise (narrower), but less reliable than the
99% confidence interval which is less precise (wider), but more reliable.
(e) Over a 30 day period Lower 95% confidence limit 155.82*30 = 4674.60
Upper 95% confidence limit 176.58*30 = 5297.40
Interpretation There is a 95% chance that between 4675 and 5298 calls, on
average, will be received over a 30-day period.
Exercise 7.11
(a) Manually
x(bar) = 12.5 s = 3.4 n = 28
Interpretation There is a 90% chance that the actual mean dividend yield of
all JSE-listed companies lies between 11.41% and 13.59%.
(a) Manually
x(bar) = 0.981 s = 0.052 n = 18
Interpretation There is a 99% chance that the average fill of 1-litre cartons
of milk lies between 0.9455 litres and 1.0165 litres.
(b) Manually
x(bar) = 0.981 s = 0.052 n = 18
Interpretation There is a 95% chance that the average fill of 1-litre cartons
of milk lies between 0.9551 litres and 1.0069 litres.
The 95% confidence interval is more precise (narrower), but less reliable than the
99% confidence interval which is less precise (wider), but more reliable.
(a) Manually
x(bar) = 1420 s = 160 n = 50
(b) Manually
x(bar) = 1420 s = 160 n = 50
(c) The 90% confidence interval is more precise (narrower), but less reliable than the
99% confidence interval which is less precise (wider), but more reliable.
x = 84 n = 200
p = 84/200 = 0.42
std error = √[(0.42)(0.58)/200] 0.0349
z crit (95%) = 1.96
95% Confidence level = 0.0684
Interpretation
There is a 95% chance that the percentage of manufacturing firms that
meet the employment equity charter lies between 35.2% and 48.8%.
Exercise 7.15
x = 68 n = 160
p = 68/160 = 0.425
std error = √[(0.425)(0.575)/160] = 0.03908
z crit (95%) = 1.96
95% Confidence level = 0.0766
Interpretation
There is a 95% chance that the percentage of cash-paying customers
lies between 34.8% and 50.2%.
Exercise 7.16
p = 287/365 = 0.786
std error = √[(0.786)*(0.214)/365] = 0.021467
z crit (90%) = 1.645
90% Confidence level = 0.03532
Interpretation
There is a 90% chance that the percentage of non-overdrawn cheque accounts
at the Tshwane branch lies between 75.1% and 82.1%.
Exercise 7.17
x = 120 n = 300
p = 120/300 = 0.4
std error = √[(0.4)*(0.6)/300] = 0.02828
z crit (90%) = 1.645
90% Confidence level = 0.04652
Interpretation
There is a 90% chance that the percentage of shoppers who frequent a shopping
mall primarily because of its store mix lies between 35.4% and 44.7%.
Exercise 7.18 File: X7.18 - cashier absenteeism.xlsx
Absent Days
Mean 9.379
Standard Error 0.625
Median 9
Mode 7
Standard Deviation 3.364
Sample Variance 11.315
Kurtosis -0.919
Skewness -0.009
Range 12
Minimum 3
Maximum 15
Sum 272
Count 29
Confidence Level (95.0%) 1.280
Interpretation
There is a 95% chance that the average number of days absent last year by
all cashiers in a supermarket was between 8.1 days and 10.7 days.
(c) Since the 95% confidence interval covers 10 days (8.1 < μ < 10.66), it is
possible that the mean number of days absent per employee does exceed 10 days.
Thus the company's policy is not being strictly adhered to.
(a) Descriptive Statistics - Parcel Weights (kg) (Using Data Analysis in Excel )
Interpretation
There is a 90% chance that the average parcel weight is between 2.68 kg and 2.98 kg.
(c) Since the 90% confidence interval lies below 3 kg (2.675 < μ < 2.983), it is
highly likely that parcel weights do not exceed 3 kg.
Thus Post-Net is adhering to its policy.
Cost-to-Income Ratio
Mean 71.240
Standard Error 1.997
Median 68
Mode 84
Standard Deviation 14.123
Sample Variance 199.451
Kurtosis -1.145
Skewness 0.139
Range 53
Minimum 44
Maximum 97
Sum 3562
Count 50
Confidence Level (95.0%) 4.014
Interpretation
There is a 95% chance that the average cost-to-income ratio of public companies
is between 67.2% and 75.3%.
(d) Find P(x > 75) using "μ" = 71.24 and "σ"= 14.123
Standardise x = 75 to t-stat t-stat = (75 - 71.24)/14.123 = 0.26623
Interpretation
39.6% of all public companies are likely to have a cost-to-income ratio
in excess of the 75% rule of thumb.
Sample size determination
Exercise 22
(a) z 2.58 n = 666
e 0.1
σ 1
HYPOTHESIS TESTS
Exercise 8.1 To test whether a claim / statement made about a population parameter
value is probably true or false, based on sample evidence.
Exercise 8.2 The “closeness” of the sample statistics to the claimed population parameter value.
Since z-stat (2.165) > z-crit (1.645), there is sufficient sample evidence at the
5% level of significance to reject H0 in favour of H1. (i.e. Reject H0)
Conclude that the population mean value is significantly larger than 560.
(c) p -value = P(z > 2.165) = 0.5 - 0.4848 = 0.0152 From z-table; or
=1-NORMSDIST(2.165)
Since z-stat (-2.65) < z-crit (-1.28), there is sufficient sample evidence at the
10% level of significance to reject H0 in favour of H1. (i.e. Reject H0)
Conclude that the true population proportion is significantly less than 0.72.
(c) p -value = P(z < -2.65) = 0.5 - 0.496 = 0.0040 From z-table; or
=NORMSDIST(-2.65)
Since t-stat (2.644) falls within the area of acceptance, there is insufficient sample
evidence at the 1% level of significance to reject H0 in favour of H1. (i.e. Accept H0)
Conclude that the true mean value is equal to 8.2.
Since t-stat (-3.464) < t-crit (-2.718), there is sufficient sample evidence at the
1% level of significance to reject H0 in favour of H1. (Reject H0)
Conclude that the true mean value is significantly below 18.
Since z-stat (-1.627) falls within the area of acceptance, there is insufficient sample
evidence at the 5% level of significance to reject H0 in favour of H1. (i.e. Accept H0)
Conclude that the true population proportion is equal to 0.32.
Statistical conclusion
Since z-stat (-2.068) lies below -z-crit (-1.96), there is sufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1. (i.e. Reject H0).
Management conclusion
Conclude that the population mean value is significantly different from 85 minutes.
Visitors to the Knysna shopping mall do not spend 85 minutes on average in the mall.
(e) Since p -value (0.0386) < α (0.05), there is strong sample evidence to
conclude that visitors to the Knysna shopping mall do not spend 85 minutes,
on average, in the mall.
(a) H0: µ ≥ 30 min H1: µ < 30 min One-sided lower tailed test
(b) Use the z test statistic since σ is known (σ = 10.5 min (given))
Statistical conclusion
Since z-stat (-1.855) lies above z-crit (-2.33), there is insufficient sample evidence at
the 1% level of significance to reject H0 in favour of H1 (Do not reject H0).
Management conclusion
Conclude that the population mean value is at least 30 minutes.
The supermarket manager's belief is therefore valid.
The sample evidence is not strong enough to refute the belief that customers
spend 30 minutes or more, on average, doing their purchases at the supermarket.
Hence conclude that customers are likely to spend at least half-an-hour,
on average, in the supermarket doing their grocery shopping.
Exercise 8.9
(a) H0: µ ≤ 72 hours H1: µ > 72 hours One-sided upper tailed test
Use α = 0.10
Area of Acceptance z ≤ 1.28 Read off 0.40 from z-table; or
=NORMSINV(0.90) [using Excel]
Statistical conclusion
Since z-stat (1.47) > z-crit (1.28), there is sufficient sample evidence at
the 10% level of significance to reject H0 in favour of H1 (Reject H0).
Management conclusion
Conclude that the local importer's claim is valid.
Consignments are taking significantly longer than 72 hours to clear customs.
(b) H0: µ ≤ 40% H1: µ > 40% One-sided upper tailed test
Statistical conclusion
Since z-stat (2.431) > z-crit (2.33), there is sufficient sample evidence at
the 1% level of significance to reject H0 in favour of H1 (Reject H0).
Management conclusion
Conclude that the Department of Health's concern is justified.
The average markup is significantly greater than 40%.
Since p -value (0.0075) << α (0.01) it confirms H1. There is overwhelming sample
evidence to conclude that the average % markup is significantly greater than 40%.
Exercise 8.11
(a) Use the t test statistic since σ is unknown (only s = 21 gms is given)
Statistical conclusion
Since t-stat (-1,905) lies within the acceptance area, there is insufficient sample
evidence at the 5% level of significance to reject H0 in favour of H1 (i.e. Accept H0)
Management conclusion
Conclude that Ryeband Bakery is both legally compliant and not wasting ingredients.
The average weight of all white loaves produced by Ryeband Bakery is 700 gms.
Since p -value (0.0613) > α (0.05) H0 cannot be rejected as the sample evidence
is weak in favour of H1.
Hence it can be concluded that, on average, the weight of white bread
loaves produced by the Ryeband Bakery is 700 gm.
(c) H0: µ ≥ 700 gms H1: µ < 700 gms One-sided lower tailed test
Statistical conclusion
Since t-stat (-1.905) < t-crit (-1.671), there is sufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1 (i.e. Reject H0).
Management conclusion
Conclude that Ryeband Bakery is not legally compliant.The average weight of all
white bread loaves produced by Ryeband Bakery is significantly below 700 gms.
Exercise 8.12
(a) Use the t test statistic since σ is unknown (only s = R788 is given)
Statistical conclusion
Since t-stat (-1.211) lies within the acceptance area, there is insufficient sample
evidence at the 10% level of significance to reject H0 in favour of H1 (i.e. Accept H0)
Management conclusion
Conclude that mean weekly sales of the new pudding flavour is not less than R5500.
The company should therefore not withdraw the product at this stage.
Since p -value (0.1212) > α (0.10), H0 cannot be rejected as the sample evidence
is weak in favour of H1.
Hence it can be concluded that, on average, the weekly sales of the new pudding
flavour is not less than R5500 and the product should not be withdrawn.
Exercise 8.13
(a) Use the t test statistic since σ is unknown (only s = 3.6 is given)
Statistical conclusion
Since t-stat (1.841) > t-crit (1.708), it lies in the region of rejection.
Therefore there is sufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1 (Reject H0)
Management conclusion
Conclude that mean tensile strength of the consignment of wire is more than 80 kg.
Marathon Products should accept this consignment as it meets quality specs.
Since p -value (0.0388) < α (0.05) there is strong sample evidence to reject H0
in favour of H1.
Hence it can be concluded that, on average, the tensile strength of
the wire in the consignment exceeds 80 kg. Hence accept the consignment.
Exercise 8.14
(a) Use the t test statistic since σ is unknown (only s = 0.068 is given)
Statistical conclusion
Since t-stat (-1.1842) > t-crit (-1.729), it lies within the region of acceptance.
There is therefore insufficient sample evidence at the
5% level of significance to reject H0 in favour of H1 (i.e. Accept H0)
Management conclusion
Conclude that the mean fill of one-litre milk containers is not less than 1 litre.
The Consumer Council's claim that containers are being underfilled is not valid.
H0: π ≥ 0.30 H1: π < 0.30 One sided lower tailed test
Use α = 0.05
Area of Acceptance z ≥ -1.645 Read off z(0.45) from z-table; or
=NORMSINV(0.05) [using Excel ]
n= 400 x= 106
p= 106/400 = 0,265
std error = √(0.3*0.7)/400 = 0,0229
z-stat = (0.265 - 0.3)/(0.0229) = -1.5284
Statistical conclusion
Since z-stat (-1.5284) > z-crit (-1.645) there is insufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1 (i.e. Accept H0)
Management conclusion
Conclude that 30% or more of listeners tune into the news broadcast of this station.
The company should advertise in this radio station's news timeslots.
Use α = 0.05
Area of Acceptance z ≤ 1.645 Read off z(0.45) from z-table; or
=NORMSINV(0.95) [using Excel ]
n= 150 x= 54
p= (150-54)/150 = 0.64
std error = √(0.6*0.4)/150 = 0.04
z-stat = (0.64 - 0.6)/(0.04) = 1.000
Statistical conclusion
Since z-stat (1.00) < z-crit (1.645) there is insufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1 (i.e. Accept H0)
Management conclusion
Conclude that not more than 60% of Cape Town motorists do not have vehicle insurance.
The motor vehicle advisor's claim is not valid.
Since p -value (0.1587) > α (0.05), the sample evidence does not support H1.
Hence the insurance advisor's claim has no statistical validity.
Exercise 8.17
Use α = 0.10
Area of Acceptance z ≤ 1.28 Read off z(0.40) from z-table; or
=NORMSINV(0.90) [using Excel]
n= 560 x= 96
p= 96/560 = 0.1714
std error = √(0,15*0,85)/560 = 0.0151
z-stat = (0,1714 - 0,15)/(0,0151) = 1.417
Statistical conclusion
Since z-stat (1.417) > z-crit (1.28) there is sufficient sample evidence at
the 10% level of significance to reject H0 in favour of H1 (i.e. Reject H0)
Management conclusion
Conclude that the churn rate in the telecommunications industry exceeds 15%.
Use α = 0.01
Area of Acceptance z ≥ -2.33 Read off z(0.49) from z-table; or
=NORMSINV(0.01) [using Excel]
n= 300 x= 260
p= 260/300 = 0.8667
std error = √(0.9*0.1)/300 = 0.0173
z-stat = (0.8667 - 0.9)/(0.0173) = -1.9249
Statistical conclusion
Since z-stat (-1.9249) > z-crit (-2.33) there is insufficient sample evidence at
the 1% level of significance to reject H0 in favour of H1 (i.e. Do not reject H0)
Management conclusion
Conclude that the germination rate of the barley seed is at least 90%.
The cooperative can justify buying the barley seed from this merchant.
The cooperative can accept the seed merchant's claim.
Statistical conclusion
Since t-stat (-1.8825) < t-crit (-1.676) there is sufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1 (i.e. Reject H0)
Management conclusion
Conclude that the mean cost-to-income ratio of JSE companies is less than 75%.
JSE companies are therefore adhering to the rule of thumb.
Exercise 8.20 File: X8.20 - kitchenware.xlsx
(b) Use the t test statistic since σ is unknown Sales Transaction value
Mean 137.12
H0: µ ≥ R150 H1: µ < R150 Standard Error 6.657
Median 138.5
Use α = 0.05 and degrees of freedom = (n -1) = 49 Mode 184
Read off t(0.05,49) from t-table; or Standard Deviation 47.074
=TINV(0.10,49) [using Excel] Sample Variance 2215.944
Kurtosis -0.741
Area of Acceptance t ≥ -1.676 Skewness 0.022
Range 190
std error = 6.657 Minimum 52
Maximum 242
t-stat = (137.12 - 150)/(6.657) = -1.9348 Sum 6856
Count 50
Statistical conclusion
Since t-stat (-1.9348) < t-crit (-1.676) there is sufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1 (Reject H0).
Management conclusion
Conclude that the mean transaction value at the Claremont branch is signficantly
below R150.
The management are advised to close the Claremont branch since it is unprofitable.
Exercise 8.21 File: X8.21 - flight delays.xlsx
delays Count
≤5 0
5 - ≤ 7.5 8
7.6 - ≤ 10 28
10.1 - ≤ 12.5 29
12.6 - ≤ 15 13
15.6 - ≤ 17.5 2
> 17.5 0
28 29
30
25
No. of Flights
20
15 13
10 8
5 2
0 0
0
5 7.5 10 12.5 15 17.5 More
Statistical conclusion
Since t-stat (1.241) < t-crit (1.292) there is insufficient sample evidence at
the 10% level of significance to reject H0 in favour of H1 (i.e. Accept H0).
Management conclusion
Conclude that flight delay times, on average, do not exceed 10 minutes.
ACASA management do not need to conduct an indepth investigation on flight delays.
Exercise 8.22 File: X8.22 - medical claims.xls
30
25
25
21
20 18
No. of Claims
15
11
9
10 8
5
5 3
0
0
100 125 150 175 200 225 250 300 More
Statistical conclusion
Since t-stat (2.275) < t-crit (2.365) there is insufficient sample evidence at
the 1% level of significance to reject H0 in favour of H1 (Thus accept H0).
Management conclusion
Conclude that the average number of claims processed daily does not exceed 180.
Thus the supervisor has no statistical grounds for requesting additional staff.
Exercise 8.23 File: X8.23 - newspaper readership.xlsx
40
35
35
30
25.8
23.3
% of Readers
25
20
15.8
15
10
5
0
Sun Guardian Mail Voice
Interpretation
Based on the sample fo 120 tabloid readers, the Guardian newspaper has the
largest share of 35%. The Sun has the lowest percentage of readers at 16%.
H0: π ≥ 0.40 H1: π < 0.40 Test claim that Guardian newspaper
has at least a 40% market share.
(c) Use α = 0.05
Area of Acceptance z ≥ -1.645 Read off z(0.45) from z-table; or
=NORMSINV(0.05) [using Excel]
n= 120 x= 42
p= 42/120 = 0.35
std error = √(0.4*0.6)/120 = 0.0447
z-stat = (0.35 - 0.4)/(0.0447) = -1.1186
Statistical conclusion
Since z-stat (-1.1186) > z-crit (-1.645) there is insufficient sample evidence at
the 5% level of significance to reject H0 in favour of H1 (Thus accept H0)
Management conclusion
Hence conclude that the Guardian's market share is at least 40%
The Guardian newspaper 's claim is justified statistically.
Exercise 8.24 File: X8.24 - citrus products.xlsx
50
42.35
37.65
% of respondents
40
30
20
20
10
0
Low Moderate High
Awareness Levels
Interpretation
80% of sampled consumers have a low or moderate awareness. Only 20% of
the sampled consumers indicated a high awarness of the nutritional benefits of citrus.
n= 170 x= 34
p= 34/170 = 0.2
std error = √(0.15*0.85)/170 = 0.0274
z-stat = (0.20 - 0.15)/(0.0274) = 1.825
Statistical conclusion
Since z-stat (1.825) < z-crit (2.326) there is insufficient sample evidence at
the 1% level of significance to reject H0 in favour of H1 (i.e. Accept H0)
16
14 13
12
12 11
10
No. of days
8
6
6 5
4 3
Scrap % intervals
Interpretation
The assumption of normality is largely satisfied.
The histogram is only moderately skewed to the right.
Statistical conclusion
Since t-stat (-3.693) lies well within the region of rejection, there is strong sample
evidence at the 5% significance level to reject H0 in favour of H1. (Thus reject H0).
Management conclusion
Conclude that the average daily % scrap produced by the machine is less than 3.75%.
The machine is not yet due for a full maintenance service.
Exercise 8.26 Hypothesis Test for a Single Population Variance, σ2
5m pipe length variability analysis
Problem Characteristics
Variable x = length of pipe (specification = 5m)
Data type numerical, ratio scaled, continuous.
Data n = 26 pipes
α= 0.05
s= 3.46 σ0 = 3
2
Step 3 Sample test statistic X -stat Formula 8.4
2
X -stat = 33.254 Also p -value = 0.12
Use CHISQ.DIST.RT(x, df)
Steps 4, 5 Statistical Conclusion
Since X2-stat < upper X2-crit (i.e. lies in region of non-rejection of H0),
do not reject H0 at 5% level of significance.
Management Conclusion
The production manager can be 95% confident that the variation
in pipe lengths is within the limits of the product specification.
Exercise 8.27 Hypothesis Test for a Single Population Variance, σ2
Problem Characteristics
Variable x = unknown - but numeric
Data type numerical, ratio scaled, continuous
Data n = 20
α= 0.1
s2 = 49.3 σ20 = 30
2
Step 3 Sample test statistic X -stat Formula 8.4
X2-stat = 31.223 Also p -value = 0.0382
Use CHISQ.DIST.RT(x, df)
Steps 4, 5 Statistical Conclusion
Since X2-stat > X2-crit (i.e. lies in region of rejection of H0),
reject H0 at 10% level of significance.
Management Conclusion
We are 90% confident that the population variance is significantly greater
than the specified value of 30.
Exercise 8.28 Hypothesis Test for a Single Population Variance, σ
2
Data n = 32 claims
α= 0.05
2
s= 84 σ 0= 5625
2
Step 1 H0 : σ = 5625 Two-tailed test
2
H1 : σ ≠ 5625 Management Question in H0
2
Step 3 Sample test statisticX -stat Use Formula 8.4
2
X -stat = 38.886 Also p -value = 0.1561 Use CHISQ.DIST.RT(x, df)
Management Conclusion
2
The insurance industry can be 95% confident that the variation in claim values is still σ = R5625.
---ooOoo---
Exercise 8.29 File: X8.29 - pain relief.xlsx
Problem Characteristics
Variable x = time to pain relief (in minutes)
Data type numerical, ratio scaled, continuous
Data n = 16 patients
α= 0.01
s= 0.9004 σ20 = 1.8
2
Step 3 Sample test statistic X -stat Use Formula 8.4
2
X -stat = 6.756 Also p -value = 0.0359
Use CHISQ.DIST(x, df)
Steps 4, 5 Statistical Conclusion
Since X2-stat > lower X2-crit (i.e. lies in region of non-rejection of H0),
do not reject H0 at 1% level of significance.
HYPOTHESIS TESTS
Exercise 9.1 When the population standard deviations of the two populations are unknown.
Since F-stat (1.555) < F-crit (2.515), do not reject H0 in favour of H1.
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((8.45-10.22)-(0))/1.16747
-1.51609
Conclusion
Since t-stat (-1.51609) lies within the region of acceptance, there is
insufficient sample evidence at the 5% level of significance to
reject H0 in favour of H1. (i.e. Accept H0).
Conclude that there is no difference in the mean earnings yield (%) between
manufacturing companies and retail companies.
Exercise 9.7
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((41.8-47.4)-(0))/4.0603
-1.379
Statistical conclusion
t-stat (-1.379) now lies within the (new) region of acceptance.
Thus there is insufficient sample evidence at the 5% level of significance
to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that there is no significant difference in the mean ages between
DIY consumers and non-DIY consumers.
Exercise 9.8
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
2 2
H0: σ 1 =σ 2 Two tailed test
H1: σ²1 ≠ σ²2
t-stat = ((35.3-31.8)-(0))/1.6805
2.083
Statistical conclusion
Since t-stat (2,083) lies within the region of acceptance,
there is insufficient sample evidence at the 1% level of significance
to reject H0 in favour of H1. (i.e. Accept H0).
z-stat = ((922-828)-(0))/60.26065
1.5599
Statistical conclusion
Since z-stat (1.5599) lies within the region of acceptance, there is insufficient sample
evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that there is no difference in the mean month-end credit card balances
between Mastercard holders and Visa Card holders.
Exercise 9.10
z-stat = ((6.9-7.5)-(0))/0.283901
-2.1134
Statistical conclusion
Since z-stat (-2.1134) lies outside (below) the region of acceptance, there is sufficient
sample evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Reject H0).
Management conclusion
Conclude that the mean job satisfaction score for non-attendees is significantly
lower than the mean job satisfaction score for job enrichment attendees.
Thus, the statistical evidence supports the view that the job enrichment
workshops significantly increased job satisfaction levels of sales consultants.
Exercise 9.11
There is a 95% chance that the true average time to settlement for
claims lodged against the Explorer Fund lies between 11.24 days and 13.56 days.
z-stat = ((10.8-12.4)-(0))/1.041199
-1.5367
Statistical conclusion
Since z-stat (-1.5367) lies within the region of acceptance, there is insufficient sample
(or p-value = 0.0622 > α = 0.05) (see (iii) below), there is insufficient sample evidence
evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
There is no difference in the mean claims settlement time between the two Funds.
Thus, the statistical evidence does not support the view that the Green-Aid Medical
Fund settles claims sooner, on average, than the Explorer Medical Fund.
Exercise 9.12
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((0.75-0.89)-(0))/0.0821
-1.705
Statistical conclusion
Since t-stat (-1.705) lies within the region of acceptance, there is insufficient sample
evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that there is no difference in the mean bread baking time between gas
and electric ovens, at the 5% significance level.
Gas ovens are therefore, not faster, on average, than electric ovens.
Exercise 9.13
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((335.2-265.6)-(0))/47.6243
1.4614
Statistical conclusion
Since t-stat (1.4614) lies outside (above) the region of acceptance, there is sufficient
sample evidence at the 10% significance level to reject H0 in favour of H1 (i.e. Reject H0).
Management conclusion
Conclude that the mean size of orders received by the Cape Town branch is
significantly larger than the mean size of orders received by the Durban branch.
Thus the Cape Town branch is performing better than the Durban branch in
terms of average order size.
Statistical conclusion
t-stat (= 1.4614) now lies within the (new) region of acceptance.
Thus there is insufficient sample evidence at the 5% level of significance to
reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that there is no significant difference in the mean order sizes between the
Cape Town branch and the Durban branch.
Thus there is no evidence to believe that the Cape Town branch is performing better
than the Durban branch in terms of average order size.
(d) Findings based on the 5% significance level are more meaningful than those based
on the 10% significance level because it requires stronger (more convincing) sample
evidence before tests conducted at 5% are prepared to reject the null hypothesis.
The operations manager can be more confident that there is no difference in mean
performance between the two branches (conclusion based on (b)).
Exercise 9.14 File: X9.14 - package designs.xlsx
Since F-stat (1.377) < F-crit (4.99), do not reject H0 in favour of H1.
Now conduct the t-test for equal means, using the pooled-variances t-test approach.
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((23.75-27.375)-(0))/2.650412
-1.3677
Statistical conclusion
Since t-stat (-1.3677) lies within the region of acceptance, there is insufficient sample
evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that there is no difference in the mean weekly sales of one-litre cartons
of apple juice between the pyramid-shaped and barrel-shaped carton designs.
Thus the marketer can choose either package design to achieve higher weekly sales.
Exercise 9.15
z-stat = (0.309-0.24)/0.049789
1.3858
Statistical conclusion
Since z-stat (= 1.3858) lies within the region of acceptance, there is insufficient sample
evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that there is no difference in the percentage of consumers who prefer
each type of fruit-flavoured wheat cereal.
The marketer's view that Fruit Puffs is more preferred than Fruity Wheat cannot be
validated based on the statistical evidence at the 5% level of significance.
The marketer can therefore choose to launch either fruit flavour of wheat cereal.
Exercise 9.16
z-stat = (0.329-0.191)/0.056433
2.445
Statistical conclusion
Since z-stat (2.445) lies outside (above) the region of acceptance, there is sufficient
sample evidence at the 5% significance level to reject H0 in favour of H1 (i.e. Reject H0)
Management conclusion
Conclude that there is a difference in the proportion of males compared to the
proportion of females who enjoy listening to jazz.
Since the p-value (=0.0145) < α = 0.05, there is strong sample evidence in
support of H1. Hence conclude that there is a difference in the proportion of males
compared to the proportion of females who enjoy listening to jazz.
Exercise 9.17
z-stat = (0.16-0.22)/0.0334
-1.796
Statistical conclusion
Since z-stat (= -1.796) lies outside (below) the region of acceptance, there is sufficient
sample evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Reject H0).
Management conclusion
Conclude that proportionately more Elite cheque account clients are overdrawn
compared to Status cheque account clients.
Since the p-value (=0.0363) < α = 0.05, there is strong sample evidence in
support of H1. Hence conclude that proportionately more Elite cheque account clients
are overdrawn compared to Status cheque account clients.
Exercise 9.18 File: X9.18 - aluminium scrap.xlsx
2 2
H0: σ 1 =σ2 Two tailed test
H1: σ²1 ≠ σ²2
Since F-stat (1.702) < F-crit (1.77), do not reject H0 in favour of H1.
(a) (iii) Use the pooled-variances t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((3.483-3.668)-(0))/0.10861
-1.7032
(a) (iii) Test performed using t-Test Assuming Equal Variances in Data Analysis
Machine 1 Machine 2
Mean 3.483 3.668
Variance 0.261 0.153
Observations 50 30
Pooled Variance 0.221
Hypothesized Mean Difference 0
df 78
t Stat -1.703
P(T<=t) one-tail 0.046
t Critical one-tail -1.665
P(T<=t) two-tail 0.093
t Critical two-tail 1.991
Management conclusion
Conclude that machine 1 has a significantly lower average daily % scrap than
machine 2.
Since the p-value (=0.046) < α = 0.05, there is strong sample evidence in
support of H1. Conclude that machine 1 produces scrap at a significantly lower
average daily rate than machine 2. This conclusion is valid at the 5% significance level.
Exercise 9.19 File: X9.19 - water purification.xlsx
2 2
H0: σ 1 =σ 2 Two tailed test
H1: σ²1 ≠ σ²2
Since F-stat (1.063) < F-crit (1.924), do not reject H0 in favour of H1.
(a) (ii) Let population 1 = Free State plant daily impurities levels
Let population 2 = KZN plant daily impurities levels
Let μi = population average daily impurities level per plant i .
(a) (iii) Use the pooled-variances t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((27.458-26.448)-(0))/0.33937
2.9764
Test performed using t-Test Assuming Equal Variances in Data Analysis
Management conclusion
Conclude that the KZN plant produces water of a higher quality (fewer impurities, on average)
than the Free State plant. Thus the KZN plant manager's claim can be supported
statistically at the 1% level of significance.
Since the p-value (=0.00223) << α = 0.01, there is overwhelming sample evidence in
support of H1. Same conclusion as in (a) applies.
Exercise 9.20 File: X9.20 - herbal tea.xlsx
Since F-stat (1.227) < F-crit (2.098), do not reject H0 in favour of H1.
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
t-stat = ((7.689-6.917)-(0))/0.43277
1.784
Statistical conclusion
Since t-stat (1.784) lies within the region of acceptance, there is insufficient sample
evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that there is no difference in the mean quercetin content (in mg/kg)
between the Freshpak and Yellow Labels brands of rooibos tea.
(b) (ii) Let population 1 = Freshpak brand (FP)
Let population 2 = Yellow Label brand (YL)
Statistical conclusion
Since t-stat (= 1.784) lies outside (above) the region of acceptance (t-stat ≤ 1.6839),
(see table above), there is sufficient sample evidence at the 5% level of
significance to reject H0 in favour of H1. (i.e. Reject H0).
Management conclusion
Conclude that Freshpak's claim that their brand contains more quercetin, on average,
than the Yellow Label brand, can be supported statistically at the 5% significance level.
Exercise 9.21 File: X9.21 - meat fat.xlsx
Since F-stat (1.261) < F-crit (2.066), do not reject H0 in favour of H1.
Use the t test statistic since σi's are unknown (only s1 and s2 are given)
(a) (iii) Test performed manually using Descriptive Statistics from Data Analysis
t-stat = ((27.0741-30.3333)-(0))/1.61459
-2.0186
Test performed using t-Test Assuming Equal Variances in Data Analysis
evidence at the 1% significance level to reject H0 in favour of H1. (i.e. Accept H0).
Management conclusion
Conclude that the mean fat content of meat between the Namibian producer and the
Little Karoo producer is the same .
Since p-value = 0.0247 > α = 0.01 (see Table above), there is insufficient sample evidence
to reject H0 in favour of H1 at the 1% level of signficance.
Same management conclusion as in (a) (iii) above.
Exercise 9.22 File: X9.22 - disinfectant sales.xlsx
Statistical conclusion
Since t-stat (-1.877) lies outside (below) the region of acceptance, there is sufficient
sample evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Reject H0).
Management conclusion
Conclude that there has been a significant increase in mean sales of 500ml bottles
of disinfectant liquid from before to after the promotional campaign.
Before After
Mean 11.5 12.17
Variance 4.455 3.606
Observations 12 12
Pearson Correlation 0.817
Hypothesized Mean Difference 0
df 11
t Stat -1.876
P(T<=t) one-tail 0.0437
t Critical one-tail 1.7959
P(T<=t) two-tail 0.0874
t Critical two-tail 2.2010
Statistical conclusion
Since p -value = 0.0437 < α = 0.05, there is moderately strong sample
evidence to reject H0 in favour of H1 and conclude that the promotional
campaign has been effective.
Exercise 9.23 File: X9.23 - performance ratings.xlsx
(a) The samples are dependent as the same employee is tested both before and
after the training sessions.
Before After
Mean 11.067 11.422
Variance 6.024 5.835
Observations 18 18
Pearson Correlation 0.95743865
Hypothesized Mean Difference 0
df 17
t Stat -2.120
P(T<=t) one-tail 0.0245
t Critical one-tail 1.740
P(T<=t) two-tail 0.04898861
t Critical two-tail 2.10981556
Statistical conclusion
Since t-stat (-2.123) lies outside (below) the region of acceptance, there is sufficient
sample evidence at the 5% significance level to reject H0 in favour of H1 (i.e. Reject H0)
Management conclusion
Conclude that there has been a significant increase in mean performance ratings
scores of employees who attended the series of workshops ans seminars.
Since p-value = 0.0244 < α = 0.05, there is strong sample evidence to reject H0
in favour of H1 and conclude that the workshops have significantly increased
employee motivation and productivity.
Exercise 9.24 File: X9.24 - household debt.xlsx
(a) The samples are dependent as the same household is tested both a year ago
and at the current time period .
Statistical conclusion
Since t-stat (2.0925) lies outside (above) the region of acceptance, there is sufficient
sample evidence at the 5% significance level to reject H0 in favour of H1. (i.e. Reject H0).
Management conclusion
Conclude that there has been a significant decrease in the average level of
household debt from a year ago.
The increase in prime interest rate (from 6% to 11%) has lead to a significant decline
in the average level of household debt from a year ago - at the 5% significance level.
Since the p -value (0.033) < α = 0,05, there is strong sample evidence to reject H0 in
favour of H1 at the 5% level of significance.
Same statistical and management conclusions as (b) above.
Exercise 9.25 Process output variability study
2 2
H0 σ (1) = σ (2) Management question in H0
H1: 2
σ (1) ≠ σ (2) 2
Random variable: milk yield (in litres per week) per cow
Region of Acceptance: Use α = 0.05 with df1 = 16-1 = 15 and df2 = 16-1 = 15
F-crit = F(0.05,15,15) = 2.403 (See Excel output)
Decision rule: Do not reject H0 if F-stat ≤ 2.403
Statistical conclusion
Since F-stat = 1.673 < F-crit = 2.403, there is insufficient sample evidence at the
5% level of significance to reject H0 in favour of H1.
Management conclusion
Therefore conclude, with 95% confidence, that there is no signficant difference
in the variability in milk yields of cows between the two feeding practices.
Exercise 9.27 File: X9.27 - employee wellness.xlsx
Region of Acceptance: Use α = 0.05 with df1 = 23-1 = 22 and df2 = 21-1 = 20
F-crit = F(0.05,22,20) = 2.102 (See Excel output)
Decision rule: Do not reject H0 if F-stat ≤ 2.102
Statistical conclusion
Since F-stat = 2.24 > F-crit = 2.102, there is sufficient sample evidence at the
5% level of significance to reject H0 in favour of H1.
Management conclusion
Therefore conclude, with 95% confidence, that 'over 40' employees do indeed
exercise more 'erractically' (i.e. show significantly greater variability in exercise times)
than 'under 40' employees.
Exercise 9.28 File: X9.28 - attrition rate.xlsx
Random variable Attrition rates (%) per call center per month
2 2
H0: σ (fin) = σ (health) Management question in H0
2 2
H1: σ (fin) ≠ σ (health)
Now F-stat = 1.715 (for an upper tailed test); or F-stat = 0.583 (for a lower tailed test)
Management conclusion
With 95% confidence, it can be concluded that there is no significant difference in the variability
in attrition rates between the two sectors (financial and health).
CHAPTER 10
Exercise 10.1 Purpose: To test whether there is any statistically significant association between
the outcomes of two categorical variables. Stated differently, are the outcomes
associated with two categorical variables independent of each other or not?
Exercise 10.3 H0: There is no statistical association between the two categorical variables
Exercise 10.4 Expected frequencies represent the null hypothesis of no association (or statistical
independence ) between the two categorical variables.
Motivation level
High Moderate Low Total
Male 26.7 26.7 46.7 100
Female 47.5 30.0 22.5 100
Total 38.6 28.6 32.9 100
Chi-Squared components
High Moderate Low
Male 1.102 0.038 1.741
Female 0.827 0.029 1.306
χ²-stat = 5.0428
Conclusion
Since χ²-stat = 5.0428 > χ²-crit = 4.605, there is sufficient sample evidence at the
10% significance level to reject H0 in favour of H1. Therefore conclude that there is a
statistical association between the gender of an employee and their level of motivation.
The nature of the relationship is described in (a) above.
Exercise 10.7 File: X10.7 - internet shopping.xlsx
Internet shopping
Yes No Total
full-time 24.3 75.7 100
at-home 18.5 81.5 100
Total 20.8 79.2 100
(b) H0: There is no association between Employment Status and Use of Internet Shopping
H1: There is an association between Employment Status and Use of Internet Shopping
Chi-Squared components
Yes No
full-time 0.8333 0.2193
at-home 0.5556 0.1462
χ²-stat = 1.7544
Conclusion
Since χ²-stat = 1.7544 < χ²-crit = 3.843, there is insufficient sample evidence at the
5% significance level to reject H0 in favour of H1. Therefore conclude that there is
no statistical association between the employment status of a customer and their
use of the internet for shopping purposes.
These two events are statistically independent.
Exercise 10.8 File: X10.8 - car size.xlsx
(b) H0: There is no association between Age of car buyer and Car Size bought.
H1: There is an association between Age of car buyer and Car Size bought.
Chi-Squared components
Small Medium Large
Under 30 3.134 0.002 1.910
30 - 45 1.207 0.510 0.058
Over 45 5.682 0.534 1.587
χ²-stat = 14.6247
Conclusion
Since χ²-stat = 14.6247 > χ²-crit = 13.277, there is sufficient sample evidence at the
1% significance level to reject H0 in favour of H1. Therefore conclude that there is a
statistical association between the age of a car buyer and the size of car bought.
(c) Management Conclusion
The nature of the statistical relationship found in (b) is described in (a) above.
Under 30's tend to prefer larger cars; 30-45 year age car buyers marginally tend
towards medium to large cars, while over 45's strongly tend to prefer smaller cars.
Recommendation
Target larger cars to the younger market and smaller cars to the older market.
Exercise 10.9 File: X10.9 - sports readership.xlsx
(a) Let πi = proportion of people who read Sports News in each of the i regions.
H0: π1 = π2 = π3
H1: At least one πi is different (i = 1,2,3)
Chi-Squared components
E Cape W Cape KZN
No 0.0215 0.5556 0.7395
Yes 0.1026 2.6496 3.5267
χ²-stat = 7.5954
Conclusion
Since χ²-stat = 7.5954 < χ²-crit = 9.21, there is insufficient sample evidence at the
1% significance level to reject H0 in favour of H1. Therefore conclude that the
proportion of people who read Sports News is the same in each Geographical Region.
These two events are statistically independent.
(c) H0: There is no association between the propensity to read Sports News and Region
H1: There is an association between the propensity to read Sports News and Region
Exercise 10.10 File: X10.10 - gym activity.xlsx
Gym activity
Spinning Swimming Circuit Total
Male 42.35 22.35 35.29 100
Female 52.73 29.09 18.18 100
Total 46.43 25.00 28.57 100
(b) H0: There is no association between Gender and preferred Gym Activity
H1: There is an association between Gender and preferred Gym Activity
Chi-Squared components
Spinning Swimming Circuit
Male 0.304 0.238 1.345
Female 0.470 0.368 2.078
χ²-stat = 4.803
Conclusion
Since χ²-stat = 4.803 > χ²-crit = 4.605 (marginally), there is sufficient sample evidence
at the 10% significance level to reject H0 in favour of H1. Therefore conclude that
gender and preferred gym activity are associated.
The nature of the relationship is described in (a) above.
(c) New rejection region Use α = 0.05 with degrees of freedom = (2-1)(3-1) = 2
χ²-crit = χ²(0.05)(2) = 5.991
Decision rule Reject H0 in favour of H1 if χ²-stat ≥ 5.991
(d) Let πi = proportion of females who prefer each gym activity i (spinning, swimming, circuit)
H0: π1 = π2 = π3
H1: At least one πi is different (i = 1,2,3)
Statistical conclusion
The same statistical conclusion applies as in (b) (i.e. a statistical association exists)
or stated differently: at least one population proportion is different.
Management conclusion
By an inspection of the row percentage table in (a), it can be concluded that
spinning and swimming are the most preferred gym activities of females,
while doing the circuit is the least preferred gym activity of females.
Exercise 10.11 File: X10.11 - supermarket visits.xlsx
χ²-stat Customers
Visits fo %fe fe χ²-stat
Daily 36 25 45 1.8
3 / 4 times 55 35 63 1.016
Twice 62 30 54 1.185
Once only 27 10 18 4.5
Total 180 100 180 8.501
Conclusion
Since χ²-stat = 8.501 > χ²-crit = 7.815, there is sufficient sample evidence
at the 5% significance level to reject H0 in favour of H1. Therefore conclude that
the shopping frequency of customers differs significantly from the manager's belief.
The nature of the relationship is described in (a) above.
(c) Interpretation
The manager's belief is that customers shop more frequently during a week.
frequently than the manager believes. For example, the survey found that
only 51% shop more than 3 times per week, while the manager assumed that this
percentage was 60%. Similarly, more customers prefer to shop only once or twice a
week (49%) compared to the manager's belief that this percentage was only 40%).
These differences are however not strongly significantly different.
Exercise 10.12 File: X10.12 - equity portfolio.xlsx
H0: There is no change in the equity portfolio mix between 2008 and 2012.
H1: There is a significant change in the equity portfolio mix between 2008 and 2012.
χ²-stat Equities
Equity fo (2012) Ratio fe fe (2008) χ²-stat
Mining 900 2 900 0
Industrial 1400 3 1350 1.852
Retail 400 1 450 5.556
Financial 1800 4 1800 0
Total 4500 10 4500 7.407
Conclusion
Since χ²-stat = 7.407 < χ²-crit = 7.815, there is insufficient sample evidence
at the 5% significance level to reject H0 in favour of H1. Therefore conclude that
there is no significant change in the equity portfolio mix of the investor
between 2008 and 2012.
The equity portfolio profile is essentially the same in 2012 as it was in 2008.
Exercise 10.13 File: X10.13 - payment method.xlsx
Conclusion
Since χ²-stat = 14.891 >> χ²-crit = 5.991, there is sufficient sample evidence
at the 5% significance level to reject H0 in favour of H1. Therefore conclude that
there is a significant shift in payment practices from the past.
Conclusion
Since χ²-stat = 6.914 > χ²-crit = 5.991, there is sufficient sample evidence
at the 5% significance level to reject H0 in favour of H1. Therefore conclude that
the Limpopo sales pattern of cereal package sizes differs significantly from the
national sales pattern of package sizes sold.
Regions
Plan Cape Gauteng Free State KZN Total
Present 62 75.7 67.1 72.7 70.8
New 38 24.3 32.9 27.3 29.2
Total 100 100 100 100 100
(b) Let πi = proportion of sales staff in favour of the present payment plan in each province i .
H0: π1 = π2 = π3 = π4
H1: At least one πi is different (i = 1,2,3,4)
Chi-Squared components
Plan Cape Gauteng Free State KZN
Present 1.0828 0.6337 0.1289 0.0606
New 2.6194 1.5330 0.3119 0.1466
χ²-stat = 6.5169
Conclusion
Since χ²-stat = 6.5169 > χ²-crit = 6.251 (marginally), there is sufficient sample evidence
at the 10% significance level to reject H0 in favour of H1. Therefore conclude that
the support for the present compensation plan is different in at least one of the provinces.
The nature of the relationship is described in (a) above.
(d) Formulate as a test for independence of association between payment plan and province.
H0: There is no association between payment plan preference and province.
H1: There is an association between payment plan preference and province.
(e) New rejection region Use α = 0.05 with degrees of freedom = (2-1)(4-1) = 3
χ²-crit = χ²(0.05)(3) = 7.815
Decision rule Reject H0 in favour of H1 if χ²-stat ≥ 7.815
New conclusion
There is no statistical association between payment plan preference and province.
(i.e. they are statistically independent) at the 5% level of significant.
The sample evidence is not strong enough (i.e. the sample proportion differences are
not great enough) to reject H0 in favour of H1 at the 5% level of significance.
Exercise 10.16 File: X10.16 - tyre defects.xlsx
(b) Formulate as a test for independence of association between nature of defect and shift
Chi-Squared components
technical mechanical material
Morning 1.9351 2.5967 0.5622
Afternoon 0.0460 0.0508 0.3782
Night 2.6646 1.8443 0.0034
χ²-stat = 10.0812
(c) Conclusion
Since χ²-stat = 10.0812 > χ²-crit = 9.488, there is sufficient sample evidence
at the 5% significance level to reject H0 in favour of H1. Therefore conclude that
the nature of tyre defects produced is related to the shift on which the defects occur.
The nature of the relationship is described in (a) above.
(d) Let πi = proportion of defective tyres caused by mechanical factors per shift i .
H0: π1 = π2 = π3
H1: At least one πi is different (i = 1,2,3)
Conclusion
Since H0 is rejected in favour of H1 at the 5% significance level, it can be concluded that there
is at least one shift that has a different proportion of defective tyres due to mechanical factors.
Based on the row percentages table in (a) above, it is clear that the morning shift
produces a proportionally larger percentage of defective tyres due to mechanical
factors than the afternoon or night shifts.
Exercise 10.17 File: X10.17 - flight delays.xlsx
(a) Histogram
Histogram of Flight Delay Times
Delays(min) Count
<5 0
5 - 7.5 8 35
7.5 - 10 28 28 29
30
10-12.5 29
25
12.5-15 13
No. of flights
15-17.5 2 20
Total 80 13
15
10 8
5 2
0
0
<5 5 - 7.5 7.5 - 10 10-12.5 12.5-15 15-17.5
(a) Two-way Pivot table of Gender by Newspaper Section Most Preferred to Read.
Section
Gender Data Sport Social Business Grand Total
Female Count 14 28 18 60
Row % 23.3% 46.7% 30.0% 100%
Male Count 41 35 44 120
Row % 34.2% 29.2% 36.7% 100%
Total Count 55 63 62 180
Total Row % 30.6% 35.0% 34.4% 100%
(b)
Stacked Bar Chart
Newspaper Section Read by Gender
120%
100%
30.0% 36.7%
80%
Business
60% Social
46.7% 29.2% Sport
40%
20% 34.2%
23.3%
0%
Female Male
(c) Formulate as a test for independence of association between gender and section read .
H0: There is no association between gender and the newspaper section most preferred.
H1 : There is an association between gender and the newspaper section most preferred.
Chi-Squared components
Sport Social Business
female 1.0242 2.3333 0.3441
male 0.5121 1.1667 0.1720
χ²-stat = 5.5525
Conclusion
Since χ²-stat = 5.5525 > χ²-crit = 4.605 (marginal), there is sufficient sample evidence
at the 10% significance level to reject H0 in favour of H1. Therefore conclude that
gender and the newspaper section most preferred are statistically associated.
The nature of the relationship is described in (a) above.
(d) Let πi = proportion of females who most prefer each newspaper section i .
H0: π1 = π2 = π3
H1: At least one πi is different (i = 1,2,3)
Conclusion
Since H0 is rejected in favour of H1 at the 10% significance level, it can be concluded that
there is at least one newspaper section that females prefer differently to the other sections.
Based on the row percentages table in (a) above, it is clear that
females tend to read the Social section most, with the Sports section read the least.
Exercise 10.19 File: X10.19 - vehicle financing.xlsx
(b)
Bar Chart of Car Loan Applications
0.4
0.35
0.3
0.25
0.2
0.37
0.15
0.23
0.1 0.19
0.15
0.05
0.06
0
Under 100 100 - <150 150 - <200 200 - <250 Above 250
Size of Loan Applications (R 1000)
H0: There is no change in the size of car loan applications from four years ago.
H1: There is a significant shift in the size of car loan applications from four years ago.
(a) Two-way Pivot table of milk type purchased and health-concious status of consumers
Question 2
Question 1 Data Yes No Grand Total
Fat-free Count 20 5 25
Percent 43.5% 16.7% 32.9%
Low fat Count 15 10 25
Percent 32.6% 33.3% 32.9%
Full cream Count 11 15 26
Percent 23.9% 50.0% 34.2%
Total Count 46 30 76
Total Percent 100% 100% 100%
(b)
Stacked Bar Chart
Milk Type Purchased and Health-Concious Status
80%
70%
% of Consumers
60%
50% 16.7% 33.3% 50.0% No
40%
Yes
30%
20% 43.5%
32.6%
10% 23.9%
0%
Fat-free Low fat Full cream
Milk Categories
(c) Formulate as a test for independence of association between milk type purchased and
health-concious status of consumers.
H0: There is no association between milk type purchased and health-concious status.
H1: There is an association between milk type purchased and health-concious status.
Chi-Squared components
Yes No
fat-free 1.566 2.402
low fat 0.001 0.002
full cream 1.426 2.186
χ²-stat = 7.583
Conclusion
Since χ²-stat = 7.583 > χ²-crit = 5.991, there is sufficient sample evidence
at the 5% significance level to reject H0 in favour of H1. Therefore conclude that
there is a significant statistical association between the health-concious status
of a consumer and their preference for certain type of dairy milk products.
The nature of the relationship is described in (a) above.
(d) Let πi = proportion of health-concious consumers who prefer each milk type i .
H0: π1 = π2 = π3
H1: At least one πi is different (i = 1,2,3)
Conclusion
Since H0 is rejected in favour of H1 at the 5% significance level, it can be concluded that
there is at least one milk type that is purchased by a different proportion of health-concious
consumers. Based on the row percentages table in (a) above, it is clear that health-concious
consumers tend to purchase more fat-free dairy products than full cream products.
CHAPTER 11
ANALYSIS OF VARIANCE
Exercise 11.1 The purpose of one-factor Anova is to test for equality of means across
multiple (more than two) populations.
Exercise 11.2 Example: Compare the output performance of five identical machines.
Exercise 11.3 Variation between groups measures how similar or how different
(i.e. how close or how far apart) the sample means are from each other.
It is a measure of the level of influence of the treatment factor on the
response measure. Any differences can be attributed to (or explained by)
the influence of the treatment factor on the numeric response measure.
Exercise 11.6 H 0 : μ 1 = μ2 = μ3 = μ4
H1: At least one μi differs
Peugot VW Ford
Σxi 32.4 29.3 34.4
ni 5 4 5
x(bar)i 6.48 7.325 6.88
Grand mean = 96.1/14 = 6.864
10
9
8 7.325
6.88
7 6.48
litres / 100 km
6
5
4
3
2
1
0
Peugot VW Ford
Car Types 6.48 7.325 6.88
H0: μ1 = μ2 = μ3
H1: At least one μi differs (i = 1, 2, 3)
Region of Rejection (Use α = 0.05 with df1 = 3-1 = 2 and df2 = 14-3 = 11)
F-crit = F(0.05)(2,11) = 3.98
Decision rule
Reject H0 in favour of H1 if F-stat ≥ 3.98
Anova Table
Source of
SS df MS F-stat
Variation
Between 1.5886 2 0.79432 4.234
Within 2.0635 11 0.18759
Total 3.6521 13
Conclusion
Since F-stat = 4.234 > F-crit = 3.98, there is sufficient sample evidence at the
5% significance level to reject H0 in favour of H1. Therefore conclude that there is at
least one motor vehicle type with a different average fuel consumption to the rest.
By inspection, it would appear that VW has an average fuel consumption that is significantly
different (higher, and hence least fuel efficient) from Peugot and Ford.
(c) New Region of Rejection (Use α = 0.01 with df1 = 3-1 = 2 and df2 = 14-3 = 11)
F-crit = F(0.01)(2,11) = 7.21
Decision rule
Reject H0 in favour of H1 if F-stat ≥ 7.21
New conclusion
There is no statistical evidence, at the 1% signficance level, to conclude that average
fuel consumption differs across motor vehicle types.
Note: The sample evidence must be more convincing (i.e. larger differences between
sample means) before one is prepared to reject the null hypothesis in favour of the
alternative hypothesis.
A level of significance of 1% indicates that the sample evidence is not strong
enough (meaningful differences) yet to reject the null hypothesis of equal means.
Exercise 11.8 File: X11.8 - package design.xlsx
Region of Rejection (Use α = 0.05 with df1 = 3-1 = 2 and df2 = 21-3 = 18)
F-crit = F(0.05)(2,18) = 3.55
Decision rule
Reject H0 in favour of H1 if F-stat ≥ 3.55
Sample evidence
Design A Design B Design C
Sample means 35.75 32.86 34.17
Grand mean 721/21 = 34.33
SSW = (35-35.75)²+(37-35.75)²+(39-35.75)²+(36-35.75)²+(30-35.75)²+(39-35.75)²+(36-35.75)²+(34-35.75)²+
(35-32.86)²+(34-32.86)²+(30-32.86)²+(31-32.86)²+(34-32.86)²+(32-32.86)²+(34-32.86)²+
(38-34.17)²+(34-34.17)²+(32-34.17)²+(34-34.17)²+(34-34.17)²+(33-34.17)²
= 101.1905
SSB = (35.75-34.33)²+(32.86-34.33)²+(34.17-34.33)²
= 31.4762
SST = 101.1905+31.4762 = 132.6667
Anova Table
Source of
SS df MS F-stat
Variation
Between 31.4762 2 15.7381 2.7995
Within 101.1905 18 5.6217
Total 132.6667 20
Conclusion
Since F-stat = 2.7995 < F-crit = 3.55, there is insufficient sample evidence at the
5% significance level to reject H0 in favour of H1. Therefore conclude that there is
no difference in the mean volume of sales across the 3 package designs.
(b) Recommendation
There is no strong statistical evidence to conclude that sales volumes differ across the
three package designs. All are likely to generate the same average sales. Therefore the cereal
producer can choose any of the three package designs for their new muesli cereal.
Exercise 11.9 File: X11.9 - bank service.xlsx
Region of Rejection (Use α = 0.10 with df1 = 3-1 = 2 and df2 = 27-3 = 24)
F-crit = F(0.10)(2,24) = 2.538 =FINV(0.1,2,24)
Decision rule
Reject H0 in favour of H1 if F-stat ≥ 2.538
Sample evidence
Bank X Bank Y Bank Z
Sample means 6.875 5.778 6.2
Grand mean 169/27 = 6.259
SSW = (8-6.875)²+(6-6.875)²+...+(5-5.778)²+(6-5.778)²+…+(8-6.2)²+(7-6.2)²+…+(6-6.2)²
= 24.0306
SSB = (6.875-6.259)²+(5.778-6.259)²+(6.2-6.259)²
= 5.1546
SST = 24.0306 + 5.1546 = 29.1852
Anova Table
Source of
SS df MS F-stat
Variation
Between 5.1546 2 2.5773 2.574
Within 24.0306 24 1.0013
Total 29.1852 26
Conclusion
Since F-stat = 2.574 > F-crit = 2.538, there is sufficient sample evidence at the
10% significance level to reject H0 in favour of H1. Therefore conclude that there is
at least one bank that has a different mean service rating score to the other banks.
(b) New Region of Rejection (Use α = 0.05 with df1 = 3-1 = 2 and df2 = 27-3 = 24)
F-crit = F(0.05)(2,24) = 3.40
Decision rule
Reject H0 in favour of H1 if F-stat ≥ 3.40
New conclusion
There is no statistical evidence, at the 5% signficance level, to conclude that the
mean service ratings is different across the three banks.
The three banks are perceived similarly by customers in terms of their service levels.
Note: The reason for the change in conclusion between (a) and (b) is that the
statistical evidence is only weak (i.e. small differences in sample means) at
the 10% significance level, while it the 5% significance level, it is not seen as
strong enough (i.e. differences are not large enough) to reject the null hypothesis.
Exercise 11.10 File: X11.10 - shelf height.xlsx
Let μi = population mean sales of a drinking chocolate product displayed at shelf height i
H0: μ1 = μ2 = μ3 = μ4
H1: At least one μi differs (i = 1, 2, 3, 4)
Region of Rejection (Use α = 0.05 with df1 = 4-1 = 3 and df2 = 30-4 = 26)
F-crit = F(0.05)(3,26) = 2.990
Decision rule
Reject H0 in favour of H1 if F-stat ≥ 2,990
Sample evidence
Bottom Waist Shoulder Top
Sample means 76.143 81.375 82.444 74.833
Grand mean 2375/30 = 79.167
SSW = (78-76.143)²+….+(78-81.375)²+….+(83-82.444)²+….+(69-74.833)²+…+(75-74.833)²
= 727.788
SSB = (76.143-79.167)²+(81.375-79.167)²+(82.444-79.167)²+(74.833-79.167)²
= 312.379
SST = 727.788 + 312.379 = 1040.167
Anova Table
Source of
SS df MS F-stat
Variation
Between 312.379 3 104.126 3.720
Within 727.788 26 27.992
Total 1040.167 29
Conclusion
Since F-stat = 3.72 > F-crit = 2.99, there is sufficient sample evidence at the
5% significance level to reject H0 in favour of H1. Therefore conclude that there is
at least one shelf height that generates a different mean level of sales to the other shelves.
By inspection, it would appear that shoulder and waist high shelves generate higher average
sales of the drinking chocolate product than bottom or top shelves.
Exercise 11.11 File: X11.11 - machine evaluation.xlsx
Let μi = population mean processing time for shaping and labelling machine i
H0: μ1 = μ2 = μ3
H1: At least one μi differs (i = 1, 2, 3)
SUMMARY
Groups Count Sum Average Variance
Machine A 5 59 11.8 3.7
Machine B 5 56 11.2 5.7
Machine C 5 72 14.4 3.8
ANOVA
Source of Variation SS df MS F-stat P-value F crit
Between Groups 28.933 2 14.467 3.288 0.0727 2.8068
Within Groups 52.8 12 4.4
Total 81.733 14
Conclusion
Since F-stat = 3.288 > F-crit = 2.8068, there is sufficient sample evidence at the
10% significance level to reject H0 in favour of H1. Therefore conclude that there is at least
machine that has a different mean processing time.
By inspection, machine C has a significantly longer mean processing time than either
machines A and B. Machine C must not be considered for purchase.
(b) Two-Sample Test of Mean Processing Times between Machines A (1) and B (2)
H0: μ1 = μ2 (two tailed test)
H1: μ1 ≠ μ2
Machine A Machine B
Mean 11.8 11.2
Variance 3.7 5.7
Observations 5 5
Pooled Variance 4.7
Hypothesized Mean Difference 0
df 8
t Stat 0.4376
P(T<=t) one-tail 0.3366
t Critical one-tail 1.3968
P(T<=t) two-tail 0.6733 t-crit (0.10, 8) =
t Critical two-tail 1.8595 =TINV(0.1,8) 1.8595
Conclusion
Since t-stat = 0.4376 lies with the region of non-rejection of H 0 (i.e. within ± 1.8595),
the sample evidence is not strong enough to reject H 0 in favour of H1.
The population mean processing times between the two machines A and B are
likely to be identical. Thus the company can purchase either machine A or machine B.
(c) Recommendation
Based on the statistical evidence in (a) and (b), the company can purchase either
machine A or machine B - they are likely to be equally efficient in operation.
Exercise 11.12 File: X11.12 - earnings yield.xlsx
SUMMARY
Groups Count Sum Average Variance
Industrial 20 96.1 4.81 1.091
Retail 20 94.4 4.72 1.492
Financial 20 113.2 5.66 1.588
Mining 20 111 5.55 2.067
ANOVA
Source of Variation SS df MS F-stat P-value F crit
Between Groups 14.3894 3 4.7965 3.0757 0.0326 2.7249
Within Groups 118.5195 76 1.5595
Total 132.9089 79
Conclusion
Since F-stat = 3.076 > F-crit = 2.725, there is sufficient sample evidence at the
5% significance level to reject H0 in favour of H1. Therefore conclude that there is
at least one sector with a different mean earnings yield relative to the other sectors.
(c) Interpretation
By inspection, the Industrial and Retail sectors each appear to have significantly lower
mean earnings yields relative to the Financial and Mining sectors' mean earnings yields.
Exercise 11.13 File: X11.13 - advertising strategy.xlsx
Let μi = population mean level of sales achieved under each advertising strategy i
H0: μ1 = μ2 = μ3
H1: At least one μi differs (i = 1, 2, 3)
SUMMARY
Groups Count Sum Average Variance
Sophisticated 20 8380 419 5075.579
Athletic 20 7241 362.05 6201.313
Trendy 20 8030 401.5 3781.737
ANOVA
Source of Variation SS df MS F-stat P-value F-crit
Between Groups 34039.03 2 17019.52 3.391 0.0406 3.159
Within Groups 286113.95 57 5019.54
Total 320152.98 59
Conclusion
Since F-stat = 3.391 > F-crit = 3.159, there is sufficient sample evidence at the 5% level of
significance to reject H0 in favour of H1. Therefore conclude that there is at least one
advertising strategy that results in a different mean level of deodorant sales relative
to the other strategies.
Recommendation:
Either the Trendy or the Sophisticated strategy can be adopted.
(d) Two-Sample Test of Means between the Sophisticated (1) and Trendy (2) Strategies
H0: μ1 = μ2 (two-tailed test)
H1: μ1 ≠ μ2
Sophisticated Trendy
Mean 419 401.5
Variance 5075.579 3781.737
Observations 20 20
Pooled Variance 4428.6579
Hypothesized Mean Difference 0
df 38
t Stat 0.8316
P(T<=t) one-tail 0.2054
t Critical one-tail 1.6860
P(T<=t) two-tail 0.4108 t-crit (0.05,38) =
t Critical two-tail 2.0244 =TINV(0.05,38) 2.0244
Conclusion
Since t-stat = 0.8316 lies within the region of non-rejection of H0 (i.e. ± 2.0244), there is
insufficient sample evidence to reject H0 in favour of H1.
Therefore the population mean sales from each of the two strategies is likely to be identical.
The two strategies are therefore equally effective and either can be adopted by the company.
(e) Recommendation
The Athletic strategy can be discarded. It appears the least effective.
The remaining two strategies (Sophisticated and Trendy) are equally effective and
therefore either can be adopted by the company to promote its new ladies deodorant.
Exercise 11.14 File: X11.14 - leverage ratio.xlsx
Interpretation
The mean leverage ratio is lowest for the banking sector and highest for the
construction and the manufacturing sectors.
These differences do appear to be significant.
SUMMARY
Groups Count Sum Average Variance
Technology 30 2215 73.83 86.42
Construction 30 2342 78.07 109.65
Banking 30 2092 69.73 191.58
Manufacturing 30 2291 76.37 165.21
ANOVA
Source of Variation SS df MS F-stat P-value F crit
Between Groups 1181.13 3 393.711 2.849 0.0406 2.683
Within Groups 16032.87 116 138.214
By inspection, the banking sector has the lowest mean leverage ratio, while construction
and manufacturing appear to have similarly high mean leverage ratios.
Recommendation The investor is advised to consider either the banking sector (with the lowest
mean leverage ratio) or the technology sector (with a marginally higher mean
leverage ratio). (This difference may not be statistically significant).
(c) Two-Sample Test of Means - Leverage ratios between Technology (1) and Banking (2) sectors.
H0: μ1 = μ2 (two-tailed test)
H1: μ1 ≠ μ2
Technology Banking
Mean 73.833 69.733
Variance 86.420 191.582
Observations 30 30
Pooled Variance 139.001
Hypothesized Mean Difference 0
df 58
t Stat 1.347
P(T<=t) one-tail 0.092
t Critical one-tail 1.672
P(T<=t) two-tail 0.183 t-crit (0.05, 58) =
t Critical two-tail 2.002 =TINV(0.05,58) 2.002
Conclusion
Since t-stat = 1.347 lies within the region of non-rejection of H 0 (i.e. within ±2.002), the sample evidence is
not strong enough to reject H 0 in favour of H1. The population mean leverage ratios between the
Technology and the the Banking sector are therefore likely to be equal.
(d) Recommendation
Based on the statistical evidence in (c) and (d), an investor is advised to consider either
the Technology sector or the Banking sector. Their mean leverage ratios are likely to be equal.
Since both sectors offer an investor the same lower risk, either or both can be chosen for investment.
Exercise 11.15 File: X11.15 - training methods.xlsx
Interpretation
The differences in mean performance scores appear marginal across the four
different training methods, with on-the-job training and role-play having the
highest average scores.
SUMMARY
Groups Count Sum Average Variance
On-the-Job 16 144 9 0.107
Lecture 14 122.5 8.75 0.177
Role Play 12 110.4 9.2 0.105
Audio-Visual 14 123.9 8.85 0.181
ANOVA
Source of Variation SS df MS F-stat P-value F-crit
Between Groups 1.487 3 0.4957 3.479 0.0223 2.7826
Within Groups 7.41 52 0.1425
Total 8.897 55
Conclusion
Since F-stat = 3.479 > F-crit = 2.7826, there is sufficient sample evidence at the
5% significance level to reject H0 in favour of H1. Therefore conclude that there is at least one
training method with a different mean performance score relative to the other training methods.
By inspection, the lecture and audio-visual are the least effective (lower mean scores),
while on-the-job and the role-play methods are more effective (with higher mean scores).
Recommendation
The training manager is advised to consider either on-the-job training or use
role play methods (The difference does not appear to be statistically significant).
Conclusion
Since t-stat = -1.6074 lies within the region of non-rejection of H 0, (i.e. within ±2.0555) the sample
evidence is not strong enough to reject H0 in favour of H1. The population mean performance scores
between the two training methods is likely to be the same.
(d) Recommendation
Based on the statistical evidence in (b) and (c), the HR manager is advised to select either
on-the-job training or role play methods of training.
Both are likely to produce similar high mean performance scores.
Exercise 11.16 In one-factor ANOVA, only one categorical factor is used to explain
possible differences between the observed sample means.
In two-factor ANOVA, two categorical factors are used to explain
possible differences between the observed sample means.
Exercise 11.18 Interaction term means that different combinations of the levels from the two factors
can have different influences (effects) on the numeric response variable.
Exercise 11.19 Interaction plot: It visually displays the nature and strength of the interaction
effect of combinations of factor levels on the dependent response variable.
It is constructed from the sample means of the various combinations
of the different factor levels.
Exercise 11.20
(g) Factor A is statistically signficant (at α = 0.01) since F-stat (6.8) > F-crit (5.08).
Alternatively, its p-value (0.0025) < α (0.01).
Factor B is not statistically signficant (at α = 0.01) since F-stat (2.8) < F-crit (4.22).
Alternatively, its p-value (0.0499) > α (0.01).
The interaction effect between factor A and factor B is statistically signficant (at α = 0.01)
since F-stat (4.4) > F-crit (3.20).
Alternatively, its p-value (0.0013) < α (0.01).
XS11.21
Factor: Interaction
H0: No interaction effect
H1: There is an interaction effect
ANOVA
Source of Variation SS df MS F-stat p-value F-crit
Sample (Experience) 228.15 1 228.150 5.222 0.0263 4.020
Columns (Qualifications) 392.73 2 196.365 4.494 0.0157 3.168
Interaction (Exper x Qualif) 300.26 2 150.131 3.436 0.0394 3.168
Within 2359.38 54 43.692
Total 3280.52 59
(a) (ii) Factor: Qualifications Since F-stat (4.494) > F-crit (3.168), reject H0 and conclude that qualifications
is a statistically significant factor (α = 0.05)
Business graduates generate significantly higher average sales (42.32)
than graduates with Arts (36.71) or Social Science (37.09) degrees.
(a) (iii) Factor: Experience Since F-stat (5.22) > F-crit (4.02), reject H0 and conclude that experience
is a statistically significant factor (α = 0.05)
Graduates with over 3 years experience generate significantly higher average sales (40.65)
than graduates with less than 3 years experience (36.75).
(a) (iv) Factor: Interaction effect Since F-stat (3.436) > F-crit (3.168), reject H0 and conclude that there is a significant
interaction effect between experience and qualifications on graduates' sales performance (α = 0.05)
Business graduates with over 3 years experience perform the best (44.62) while social science
graduates with with less than 3 years experience perform the worst (32.59).
Page 19
XS11.21
Chart Title
46 Interaction Plot
44
42
40
38
36
34
32
30
Business Arts Social Science
Page 20
Exercise 11.22 File: X11.22 - dropped calls.xlsx
(a) (i) Random variable: % of daily dropped calls per network switch and transmission type
Factor 1 = Switch type (SW1, SW2, SW3, SW4)
Factor 2 = Transmission type (Voice, Data bundles)
Management Question: Is the % of daily dropped calls the same across all network switching
devices and / or transmission types
Factor: Interaction
H0: No interaction effect
H1: There is an interaction effect
ANOVA
Source of Variation SS df MS F-stat P-value F-crit
Sample (Transmission) 0.3481 1 0.3481 4.727498 0.033926 4.012973
Columns (Switch) 0.234819 3 0.078273 1.063014 0.372175 2.769431
Interaction (Trans x Switch) 1.050075 3 0.350025 4.753641 0.005055 2.769431
Within 4.12345 56 0.073633
Total 5.756444 63
(a) (ii) Factor: Switching device Since F-stat (1.063) < F-crit (2.769), do not reject H0 and conclude that switch devices are not statistically
significant (α = 0.05). Hence all switch devices are likely to have the same average dropped call rate.
(a) (iii) Factor: Transmission Since F-stat (4.73) > F-crit (4.01), reject H0 and conclude that transmission type
is a statistically significant factor (α = 0.05)
Data transmission lead to a higher average dropped call rate (0.872) than voice transmission (0.725).
(a) (iv) Factor: Interaction effect Since F-stat (4.75) > F-crit (2.769), reject H0 and conclude that there is a significant
interaction effect between switch devices and transmission type. (α = 0.05)
SW2 and SW3, transmitting voice (0.544 and 0.586), are likely to have the lowest average dropped call rate,
while SW1 transmitting voice (0.97) and SW3 transmitting data (1.02), are likely to have the
highest average dropped call rate.
(b) Summary of Sample Means Table
Chart Title
1.100
1.000 1.020
0.970
0.900 0.888
0.853
0.800 0.799
0.700 0.729
0.600 0.586
0.544
0.500
0.400
SW1 SW2 SW3 SW4
Voice Data
Factor: Interaction
H0: No interaction effect
H1: There is an interaction effect
ANOVA
Source of Variation SS df MS F-stat p-value F-crit
Sample (Tyres) 17.89496 1 17.89496 3.146037 0.088802 4.259677
Columns (TAMS) 83.25042 2 41.62521 7.317951 0.003301 3.402826
Interaction (Tyre x TAM) 47.77433 2 23.88716 4.1995 0.0273 3.402826
Within 136.5143 24 5.688097
Total 285.434 29
Chart Title
10.000
9.000 8.754
8.000 7.720
7.000 6.704
6.000
5.000
4.000 3.942 3.888
3.000 2.694
2.000
1.000
0.000
TAM1 TAM2 TAM3
Radial Bias
Exercise 12.1 Regression analysis defines the structural relationship between two numeric
variables as a mathematical equation (usually a straight line equation).
Its purpose is to use the equation for estimation / prediction purposes.
Degrees of freedom = 18 - 2 = 16
t-crit = t(0.05, 16) = 2.12 (Use =TINV(0.05,16) in Excel )
Decision Rule: Accept H0 if -2.12 ≤ t-stat ≤ +2.12
80
output (units) 70
60
50
40
30
20
10 15 20 25 30 35 40 45
hours of training
Interpretation
There is a strong positive relationship between hours of training
and worker output. The more the training received, the higher the output.
Coefficients b1 = (10*17240-(311*535))/(10*10213-(311²))
1.112
b0 = (535 - 1.112*311)/10
18.917
Variation in training hours can explain 65.16% of the variability in worker output.
This is a high level of explained variation. Hence training input is very beneficial
to worker output and the training programmes should be continued.
Scatter Plot
Earnings Yield vs Inventory Turnover
18
16
14
earnings yield
12
10
8
6
4
2
0
0 1 2 3 4 5 6 7 8 9
inventory turnover
Interpretation
There is a strong positive relationship between inventory turnover and earnings yield.
As inventory turnover increases, earnings yields also increases.
Coefficients b1 = (9*599-(48*107))/(9*276-(48²))
1.4167
b0 = (107-1.4167*48)/9
4.333
There is a strong positive linear association between inventory turnover and earnings yield.
Thus the business analyst's view is supported by the strong sample evidence.
(d) Coefficient of Determination (r²) = 0.8552² = 0.7313 i.e. 73.13%
Inventory turnover (capital utilisation) can explain 73.12% of the variability in a company's
earnings yield. This is a high level of explained variation. Hence inventory turnover has been
shown to have a significant direct effect on a company's earnings yield.
Yes, the regression equation can by used with confidence to estimate earnings yield
based on a company's level of inventory turnover.
Conclusion
Since t-stat (4.3655) lies outside the area of acceptance for H 0,there is
sufficient sample evidence at the 5% significance level to reject H0 in favour of H1.
Conclude that there is a strong positive association between inventory turnover
and earnings yield.
A company with an expected inventory turnover of 6 next year can expect to achieve
an earnings yield of 12.833%.
Exercise 12.10 File: X12.10 - loan applications.xlsx
Scatter Plot
Loan applications Received vs Interest Rate (%)
35
no. loan applications received
30
25
20
15
10
4 5 6 7 8 9 10
Interpretation
A moderate to strong negative linear relationship between interest rate and
number of loan applications received is observed from the scatter plot.
r= (11*1614.5 - 75.5*241)/√((11*528.25-75.5²)*(11*5507-241²))
= -0.8302
Interpretation
This correlation shows a strong negative (inverse) assocation between
interest rates (%) and the number of loan applications received.
(d) H0: ρ = 0 Area of Acceptance for H0
H1: ρ ≠ 0
t-crit = t(α=0.05,df = 9) = ± 2.262
-2.262 ≤ t-stat ≤ +2.262
t-stat = (-0.8302)*√((11-2)/(1-(-0.8302²))) =
'= -4.4677
Conclusion
Since t-stat (-4,4677) lies outside the area of acceptance for H0,there is
sufficient sample evidence at the 5% significance level to reject H0 in favour of H1.
Conclude that there is a strong negative relationship between interest rates (%)
and the number of loan applications received monthly.
b1 = (11*1614.5 - 75.5*241)/(11*528.25-75.5²)
-3.9457
b0 = (241 - (-3.9457)*(75.5))/11
48.991
If the rate of interest is 6%, the bank can expect to receive 25.32 (say, 25) applications.
Exercise 12.11 File: X12.11 - maintenance costs.xlsx
Scatter Plot
Annual Maintenance Cost (R) vs Age of Machines
70
annual maintenance cost (R)
60
50
40
30
20
10
0
0 2 4 6 8 10
Interpretation
A strong direct (positive) linear relationship between the ages of machines and
their annual maintenance costs (in Rands) is observed in the scatter plot.
r= (12*2182 - 50*443)/√((12*266-50²)*(12*18943-443²))
= 0.870028
Interpretation
There is a very strong positive association between the ages of
of machines and their annual maintenance costs (in Rands).
(d) H0: ρ = 0 Area of Acceptance for H0
H1: ρ ≠ 0
t crit = t(α=0.05,df = 10) = ± 2.228
-2.228 ≤ t-stat ≤ +2.228
Conclusion
Since t-stat (5.5806) lies outside the area of acceptance for H 0,there is
sufficient sample evidence at the 5% significance level to reject H 0 in favour of H1.
Conclude that there is a strong direct association between age of machines
and the level of annual maintance costs (in Rands).
Scatter Plot
Performance Rating vs Aptitude Score
Interpretation
There appears to be a weak to moderate positive association between an employee's
aptitude score and their performance rating.
r= (12*5858 - 75*925)/√((12*497-75²)*(12*72075-925²))
0.5194
Interpretation
There is a moderate positive association between the aptitude scores of
employees and their performance scores after one year.
(c) H0: ρ = 0 Area of Acceptance for H0
H1: ρ ≠ 0
t-crit = t(α=0.05,df = 10) = ± 2.228
-2.228 ≤ t-stat ≤ +2.228
Conclusion
Since t-stat (1.922) lies inside the area of acceptance for H0,there is
not sufficient sample evidence at the 5% significance level to reject H 0 in favour of H1.
Conclude, at a 5% significance level, that there is no statistically significant association
between an employee's aptitude score and their job performance rating score one year later.
b1 = (12*5858-75*925)/(12*497-75²) 2.7168
Interpretation of b1 coefficient
If an employee's aptitude score increases by one unit, their performance rating
score will increase by 2,7168 points.
(e) Estimation
x =8 ŷ= 60.1032 + 2.7168*(8) = 81.84
For an employee with an aptitude score of 8, they could expect a job performance rating
score of 81.84.
The association between aptitude score and performance rating is not statistically significant.
Therefore, the call centre manager should have low confidence in this
estimated performance rating score.
Exercise 12.13 File: X12.13 - opinion polls.xlsx
r= (11*28059 - 541*553)/√((11*27789-541²)*(11*2893-553²))
0.7448
Interpretation
There is a moderate to strong positive association between opinion poll predictions
and the actual election results.
Conclusion
Since t-stat (3.3484) lies outside the area of acceptance for H0,there is
sufficient sample evidence at the 5% significance level to reject H0 in favour of H1.
Conclude, at a 5% significance level, that there is a statistically significant association
between opinion poll predictions and the actual election results.
Interpretation of b1 coefficient
For a one percentage point increase in an opinion poll prediction, the actual
election percentage is likely to increase by 0.729 percentage points.
r² = 0.7448² = 0.5547
Interpretation
Opinion poll predictions can explain 55.47% of variation in actual election results percentages
(e) Prediction
x = 58 ŷ= 14.4175 + 0.729*(58) = 56.70%
If an opinion poll predicts support at 58%, the actual election result is likely to be 56.7%.
Scatter Plot
Return on Investment (%) vs Capital Investment (%)
10
return on investment (%)
0
10 20 30 40 50 60 70 80 90
levels of capital investm ent (%)
Interpretation
There appears to be a weak to moderate association between a company's level of capital
investment and its return on investment.
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.41447
R Square 0.17179
Adjusted R Square 0.15253
Standard Error 2.12495
Observations 45
ANOVA
df SS MS F-stat p-value
Regression 1 40.27335 40.27335 8.91907 0.00465
Residual 43 194.16309 4.51542
Total 44 234.43644
r² = 0.41447² = 0.171788
Interpretation
The variation in the level of capital investment explains only 17.18% of the variation
in return on investment .
Conclusion
Since t-stat (2.9865) lies outside the area of acceptance for H0,there is
sufficient sample evidence at the 5% significance level to reject H0 in favour of H1.
Conclude, at a 5% significance level, that there is a statistically significant association
between a company's level of capital investment and its return on investment.
(h) Estimation
x = 55 ŷ = 1.27412 + 0.06783 (55) = 5.005%
The expected return on investment for a company with a 55% level of capital
investment is 5.005%.
Exercise 12.15 File: X12.15 - property valuations.xlsx
300
250
market values (R)
200
150
100
50 Market values
0
0 50 100 150 200
council valuations (R)
Interpretation
There appears to be a strong positive correlation between the council's valuation of
a residential property in Bloemfontein and its market value.
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.78104
R Square 0.61002
Adjusted R Square 0.59975
Standard Error 26.40553
Observations 40
ANOVA
df SS MS F-stat p-value
Regression 1 41444.82 41444.82 59.4402 2.7522E-09
Residual 38 26495.58 697.2521
Total 39 67940.4
Conclusion
Since t-stat (7.70975) lies well outside the area of acceptance for H0,there is
sufficient sample evidence at the 5% significance level to reject H 0 in favour of H1.
Conclude, at a 5% significance level, that there is a statistically significant association
between the Council's valuation and the resultant property market valuation.
(g) Estimation
x = 100 ŷ = 71.3619 + 1.0151 (100) = R172.874 (in R1000s)
The expected market value of a property which the council values at R100 (in R1000s)
is likely to be R172.874 (in R1000s).
CHAPTER 13
Exercise 13.1 Simple linear regression has only one independent variable (x1) whereas multiple linear
regression has two or more independent variables (x1, x2, x3, … , xk) that are assumed
to influence the outcome of the dependent variable, y .
(c) F-stat = 4.5412 and F-crit = F(0.05,5,40) = 2.45 (See Anova Table)
(d) Reject H0. Conclude that the overall model is statistically significant.
(i.e. at least one x i is statistically significant in estimating y)
Exercise 13.3
(a) For each x i variable (A, B, C and D), test: H0: βi = 0 against H1: βi ≠ 0 for i = A, B, C and D.
For B : Since t-stat (-2.39) < -t-crit (-2.093); or p -value (0.014) < α (0.05), or
{-4.42 ≤ βB ≤ -0.25} does not cover zero, conclude variable B is statistically significant.
For C : Since t-stat (1.42) < -t-crit (+2.093); or p -value (0.1737) > α (0.05), or
{-0.01 ≤ βC ≤ 2.12} covers zero, conclude variable C is not statistically significant.
For D : Since t-stat (1.69) < -t-crit (+2.093); or p -value (0.1083) > α (0.05), or
{-0.48 ≤ βD ≤ 4.06} covers zero, conclude variable D is not statistically significant.
Exercise 13.4
(b) t-crit = t(0.05,30) = ±2.042. Hence, do not reject H0 if -2.042 ≤ t-stat ≤ +2.042.
(c ) Since t-stat (2.44) > t-crit (+2.042), hence reject H0 in favour of H1 at α = 0.05.
Exercise 13.5
(a) Holding all other variables constant, a unit increase in x 2 will result in a 1.6 reduction in y^ .
Exercise 13.6 Binary coding scheme (Choose 'Lean' as the base category)'
F1 and F2 are the dummy variable names chosen.
Fuel type F1 F2
Leaded 1 0
Unleaded 0 1
Lean 0 0
Exercise 13.7 Binary coding scheme (Choose 'spring' as the base category)'
S1, S2 and S3 are the dummy variable names chosen.
Season S1 S2 S3
summer 1 0 0
autumn 0 1 0
winter 0 0 1
spring 0 0 0
Exercise 13.8 File: X13.8 - employee absenteeism.xlsx
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.7384
R Square 0.5453
Adjusted R Square 0.5012
Standard Error 3.7204
Observations 35
ANOVA
df SS MS F-stat p-value
Regression 3 514.467 171.489 12.390 0.00001707
Residual 31 429.076 13.841
Total 34 943.543
(c), (d), (e) For each x i variable, test: H0: βi = 0 against H1: βi ≠ 0 with t-crit = t(0.05,31) = ±2.04
Tenure : Since t-stat (3.376) > t-crit (+2.04); or p -value (0.001997) < α (0.05), or
{0.087 ≤ βT ≤ 0.352} does not cover zero, conclude Tenure is statistically significant.
Satisfaction : Since t-stat (-1.692) lies within t-crit (±2.04); or p -value (0.100765) > α (0.05), or
{-0.406 ≤ βS ≤ 0.038} covers zero, conclude Satisfaction is not statistically significant.
Commitment : Since t-stat (-4.13) < t-crit (-2.04); or p -value (0.000254) < α (0.05), or
{-0.497 ≤ βC ≤ -0.168} does not cover zero, conclude Commitment is statistically significant.
(f) (i) No, organisational commitment is the most important explanatory factor because it has a
larger t-stat value (-4.13) and a smaller p- value (0.000254) than job tenure .
(f) (ii) No, job satisfaction is not a statistically signficant explanatory factor of employee
absenteeism (see (c), (d) and (e) above).
Yes, organisational commitment does play a statistically signficant role in explaining
employee absenteeism (see (c), (d) and (e) above).
(g) y(hat) = 36.411 + 0.22 (48) - 0.184 (50) - 0.332 (60) = 17.8008
Using t-crit = t(0.025,31) = ±2.04; standard error = 3.7204; n = 35
giving margin of error = 2.04 (3.7204)/√35 = 1.2826
Lower 95% confidence limit = 17.8008 - 1.2826 16.5182
Upper 95% confidence limit = 17.8008 + 1.2827 19.0835
{16.52 ≤ y(hat)(estimated) ≤ 19.08}
Management interpretation: We can be 95% confident that the true average number
of days absent per employee per annum is likely to lie between 16.5 days and 19.1 days.
Exercise 13.9 File: X13.9 - plastics wastage.xlsx
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.8061
R Square 0.6498
Adjusted R Square 0.6109
Standard Error 0.5160
Observations 31
ANOVA
df SS MS F-stat p-value
Regression 3 13.3384 4.4461 16.6992 2.466E-06
Residual 27 7.1887 0.2662
Total 30 20.5271
(c), (d), (e) For each x i variable, test: H0: βi = 0 against H1: βi ≠ 0 with t-crit = t(0.05,27) = ±2.052
Dexterity : Since t-stat (-3.886) < t-crit (-2.052); or p -value (0.0006) < α (0.05), or
{-0.17 ≤ βD ≤ -0.0524} does not cover zero, conclude Dexterity is statistically
significant.
Speed : Since t-stat (3.677) > t-crit (+2.052); or p -value (0.001) < α (0.05), or
{0.0077 ≤ βS ≤ 0.027} does not cover zero, conclude Speed is statistically significant.
Viscosity : Since t-stat (1.525) < t-crit (+2.052); or p -value (0.1388) > α (0.05), or
{-0.6625 ≤ βV ≤ 4.5} covers zero, conclude Viscosity is not statistically significant.
(f) The most important factor is operator dexterity (p -value (0.0006)), then machine speed with
p -value = 0.001. Plastic viscosity is not a significant influencing factor (p -value = 0.1388).
(g) y(hat) = 1.8179 - 0.1112 (25) + 0.0173 (200) + 1.9189 (0.25) = 2.9826
Using t-crit = t(0.025,27) = ±2.052; standard error = 0.516; n = 31
giving margin of error = 2.052 (0.516)/√31 = 0.1902
Lower 95% confidence limit = 2.9826 - 0.1902 = 2.7924
Upper 95% confidence limit = 2.9826 + 0.1902 = 3.1728
{2.79% ≤ y(hat)(estimated) ≤ 3.17%}
Management interpretation: We can be 95% confident that the true average % of plastic
wastage per shift is likely to lie between 2.79% and 3.17%.
Exercise 13.10 File: X13.10 - employee performance.xlsx
(a) Binary coding scheme (Choose 'method C' as the base category)
MA and MB are the dummy variable names chosen.
Method Code MA MB
A 1 0
B 0 1
C 0 0
(b) Sample input data for first 6 consultants (showing the binary coded data)
Excel's Data Analysis - Regression (using the binary coded data as in (a))
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.7894
R Square 0.6231
Adjusted R Square 0.5524
Standard Error 2.3425
Observations 20
ANOVA
df SS MS F-stat p-value
Regression 3 145.151 48.384 8.817 0.001108
Residual 16 87.799 5.487
Total 19 232.95
(e) For Experience , test: H0: βE = 0 against H1: βE ≠ 0 with t-crit = t(0.05,16) = ±2.12
Since t-stat (2.335) > t-crit (2.12), conclude work experience is statistically significant at α = 0.05.
(f) For each of MA and MB, test: H0: βi = 0 vs H1: βi ≠ 0 (i = MA, MB), wiith t-crit = t(0.05,16) = ±2.12
MA : Since t-stat (-2.659) < lower t-crit (-2.12), conclude MA is statistically significant (i.e. adopting
marketing method A results in significantly lower consultant productivity levels, on average,
compared to using marketing method C (i.e. the base category).
MB : Since –t-crit (-2.12) < t-stat (1.102) < +t-crit (-2.12), conclude MB is not statistically significant
(i.e. consultant productivity levels, on average, are the same for marketing method B and
and marketing method C (i.e. no difference to the base category average productivity level).
Overall conclusion: the independent variable ‘marketing method’ is statistically significant, but
only for marketing method A (when compared to method C (i.e. the base category).
Marketing methods B and C can be combined as there is no statistically significant difference
between them with regards to their average productivity levels across consultant.
(i) Employ consultants with longer work experience and avoid using marketing method A as it
produces lower productivity levels than either marketing methods B or C.
(a) Binary coding scheme (Choose region 'KZN' as the base category)
R1 and R2 are the dummy variable names chosen.
Region Code R1 R2
Gauteng 1 1 0
Cape 2 0 1
KZN 3 0 0
Sector Code S
Agriculture 1 1
Construction 2 0
(b) Sample input data for first 6 companies (showing the binary coded data)
Excel's Data Analysis - Regression (using the binary coded data as in (a))
ANOVA
df SS MS F-stat p-value
Regression 6 81.2595 13.5433 14.9318 0.000004076
Residual 18 16.3261 0.9070
Total 24 97.5856
REGRESSION OUTPUT
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 11.0146 0.8746 12.5936 0.0000 9.1771 12.8520
Sales 0.0002 0.0001 2.1668 0.0439 0.00001 0.00033
Margin% 0.1791 0.0672 2.6656 0.0158 0.03794 0.32030
Debt ratio(%) 0.0091 0.0154 0.5930 0.5606 -0.02321 0.04146
R1 3.1453 0.8389 3.7494 0.0015 1.38288 4.90770
R2 0.9213 0.5862 1.5716 0.1335 -0.31031 2.15295
S -0.9230 0.4205 -2.1950 0.0415 -1.80651 -0.03956
y^ = 11.0146 + 0.0002 Sales + 0.1791 Margin % + 0.0091 Debt ratio % + 3.1453 R1 + 0.9213 R2 - 0.923 S
(based on data recoded as in (a))
2
(c ) R = 81.2595/97.5856 = 83.27%
(d) H0: βS = βM% = βDR = βR1 = βR2 = βS = 0 versus H1: At least one βi ≠ 0
F-crit = F(0.05,6,18) = 2.66
F-stat = 14.932 and p -value = 0.000004076
Reject H0. Conclude that the overall model is statistically significant.
(i.e. at least one x i is statistically significant in estimating y)
(e), (h), (i) For all variables, test: H0: βi = 0 vs H1: βi ≠ 0 with t-crit = t(0.05,18) = ±2.101
Sales : Since t-stat (2.1668) > t-crit (2.101), or p -value (0.0439) < α = 0.05 or
{0.00001 ≤ βS ≤ 0.00033} does not cover zero, conclude sales is statistically significant.
Margin% : Since t-stat (2.6656) > t-crit (2.101), or p -value (0.0158) < α = 0.05 or
{0.0379 ≤ βM% ≤ 0.3203} does not cover zero, conclude margin% is statistically significant.
Debt ratio% : Since –t-crit (-2.101) < t-stat (0.593) < t-crit (2.101), or p -value (0.5606) > α = 0.05 or
{-0.0232 ≤ βDR% ≤ 0.0415} covers zero, conclude debt ratio% is not statistically significant.
(f) Region: For each dummy variable R1 and R2 , test: H0: βi = 0 against H1: βi ≠ 0 with t-crit = t(0.05,18) = ±2.101
R1 (Gauteng) : Since t-stat (3.7494) > upper t-crit (2.101); or its p -value (0.0015) < α = 0.05, or
{1.38288 ≤ βR1 ≤ 4.9077} does not cover zero, conclude that companies that operate in the Gauteng region
have a statistically significantly higher return on capital (%), on average, than companies that operate
in the KZN region (i.e. the base region).
R2 (Cape) : Since t-stat (1.5716) < upper t-crit (2.101); or its p -value (0.1335) > α = 0.05, or
{-0.31031 ≤ βR2 ≤ 2.15295} covers zero, conclude that companies that operate in the Cape region
do not have a statistically significant difference in their average return on capital (%)than companies
that operate in the KZN region (i.e. the base region).
Overall conclusion: the independent variable ‘region’ is statistically significant, but only with
respect to the Gauteng region (when compared to th KZN region (i.e. the base region).
The Cape and KZN regions can be merged into a single region as there is no statistically significant
difference in the average return on capital (%) of companies operating within these two regions.
(g) Sector: For the dummy variable, S, test: H0: βS = 0 against H1: βS ≠ 0 with t-crit = t(0.05,18) = ±2.101
S (Agriculture) : Since t-stat (-2.195) < lower t-crit (-2.101); or its p -value (0.0415) < α = 0.05, or
{-1.80651 ≤ βS ≤ -0.03956} does not cover zero, conclude that companies that operate in the
agricultural sector have a statistically significantly lower return on capital (%), on average, than
companies that operate in the construction sector (i.e. the base sector).
Overall conclusion: the independent variable ‘sector’ is statistically significant.
(j) Significant performance measures of ROC% are: Sales, Margin%, but not Debt ratio%.
For region, Gauteng has a significantly positive impact on average ROC% compared to Cape and KZN.
The agricultural sector has a significantly negative impact on average ROC% compared to the construction sector.
(j) y^ = 11.0146 + 0.0002 (8862) + 0.1791 (10) + 0.0091 (22) + 3.1453 (0) + 0.9213 (1) - 0.923 (0) = 15.6995
Using t-crit = t(0.025,18) = ±2.101; standard error = 0.9524; n = 25
giving margin of error = 2.101 (0.9524)/√25 = 0.400198
Lower 95% confidence limit = 15.6995 - 0.400198 = 15.299
Upper 95% confidence limit = 15.6995 + 0.400198 = 16.100
{15.299% ≤ y(hat)(estimated) ≤ 16.10%}
Management interpretation: The investment analyst can be 95% confident that the actual
average return on capital (%) of companies with the given profile lies between 15.3% and 16.1%.
CHAPTER 14
INDEX NUMBERS
Exercise 14.1 An index number is a single summary value that measures the overall
change in the level of activity of a single item or a basket of related
items from one time period to the another.
Example 14.2 A price index measures changes in price levels over time, holding
quantities constant.
A quantity index measures changes in consumption levels over time, holding
prices constant.
Example 14.3 Items are 'weighted' in a basket to reflect the importance (or value) of each
item in the basket relative to the other items in the basket.
Example 14.7 Real (constant) values are found by dividing monetary values by an 'inflation' index.
This removes the influence of price increases.
Real (constant) values refer to the actual purchasing power of money / or the
real (actual) change in the level of activity.
Exercise 14.8 File: X14.8 - motorcycle sales.xlsx
Motorcycle Price
(a) p1/p0*100
model Relative
A 30/25*100 = 120.0
B 19/15*100 = 126.7
C 14/12*100 = 116.7
Interpretation
Model A has risen in price by 20% from 2009 to 2010; model B by 26.7%
and model C by 16.7%.
Motorcycle
Base Value (p0*q0) Current Value (p1*q0)
model
A 25*10 = 250 30*10 = 300
B 15*55 = 825 19*55 = 1045
C 12*32 = 384 14*32 = 448
Totals 1459 1793
Weighted
Motorcycle
Base Value (p0*q0) Price Relative (p1/p0) Price
model
Relatives
A 25*10 = 250 30/25*100 = 120.0 120*250 +
B 15*55 = 825 19/15*100 = 126.7 126.7*825 +
C 12*32 = 384 14/12*100 = 116.7 116.7*384 =
Totals 1459 179300
(c) Interpretation
Motorcycle models A, B and C have risen in price by 22.9% on average
from 2009 to 2010.
Exercise 14.9 File: X14.8 - motorcycle sales.xlsx
Motorcycle Quantity
(a) q1/q0*100
model Relative
A 7/10*100 = 70.0
B 58/55*100 = 105.5
C 40/32*100 = 125.0
Interpretation
Model A unit sales dropped 30% from 2009 to 2010; model B unit sales rose
by 5.55%; while model C unit sales rose the most by 25% over the year.
Motorcycle
Base Value (p0*q0) Current Value (p0*q1)
model
A 25*10 = 250 25*7 = 175
B 15*55 = 825 15*58 = 870
C 12*32 = 384 12*40 = 480
Totals 1459 1525
Weighted
Motorcycle
Base Value (p0*q0) Quantity Relative (q1/q0) Quantity
model
Relatives
A 25*10 = 250 7/10*100 = 70.0 70*250 +
B 15*55 = 825 58/55*100 = 105.5 105.5*825 +
C 12*32 = 384 40/32*100 = 125.0 125*384 =
Totals 1459 152537.5
(c) Interpretation
Unit sales of motorcycle models A, B and C have risen by 4.5% on average
from 2009 to 2010.
Exercise 14.10 File: X14.8 - motorcycle sales.xlsx
Motorcycle
Base Value (p1*q0) Current Value (p1*q1)
model
A 30*10 = 300 30* 7 = 210
B 19*55 = 1045 19*58 = 1102
C 14*32 = 448 14*40 = 560
Totals 1793 1872
Weighted
Motorcycle
Base Value (p1*q0) Quantity Relative (q1/q0) Quantity
model
Relatives
A 30*10 = 300 7/10*100 = 70.0 70*300 +
B 19*55 = 1045 58/55*100 = 105.5 105.5*1045 +
C 14*32 = 448 40/32*100 = 125.0 125*448 =
Totals 1793 187200
(b) Interpretation
Unit sales of motorcycle models A, B and C have risen by 4.41% on average
from 2009 to 2010.
Exercise14.11 File: X14.11 - Telkom services.xlsx
Interpretation
TalkPlus services increased by 7.7% in price from 2009 to 2010, but then dropped by
15.4% in price from 2009 to 2011.
SmartAccess on the other hand showed an increase in price from 2009 to 2010 of 14.3%
and by 28.6% from 2009 to 2011.
ISDN showed a decrease in price by 10% in the first year (from 2009 to 2010) and by 20%
over the 2 year period from 2009 to 2011.
Price relatives
(c) IT Job Category
(p1/p0)
Systems analyst 119.05
Programmer 124.14
Network manager 116.67
Staff Relatives
(a) IT Job Category
(q1/q0)
Systems analyst 127.4
Programmer 85.4
Network manager 110.3
Interpretation
The staff complement of Systems Analysts grew by 27.4% and that of Network
managers grew by 10.3% over the period from 2008 to 2011. However, the
number of Programmers, on the other hand, reduced by 14.6% over this same period.
Weighted
Base Value 2008 Staff Relatives Ave of
IT Job Category
(p0*q0) (q1/q0) Quantity
Relatives
Systems analyst 3528 127.38 449400
Programmer 2784 85.42 237800
Network manager 1392 110.34 153600
7704 840800
(c) Interpretation
The overall IT staff complement across all job categories has increased by an
average of 9.14% from 2008 to 2011.
Exercise 14.14 File: X14.14 - printer cartridges.xlsx
Data
Interpretation
The price of the HQ26 printer cartridge has increased by 11.02% from 2008 to 2010.
The price of the HQ32 printer cartridge has decreased by 4.78% from 2008 to 2010.
(b) (ii) Paasche Weighted Average of Relatives Price Index - for 2009
(c) Interpretation
The average price of print cartridges increased marginally by 1.06% from 2008 to 2009.
However, the average price of print cartridges decreased by 0.95% from 2008 to 2010.
Interpretation
In 2004, the average price of electrical goods was 21.4% below the 2009 (base) price levels,
while in 2006, it was only 10.7% below the 2009 (base) price levels.
In 2010, prices were 2.7% higher on average than in the base period of 2009.
Interpretation
The annual average price changes in electrical goods starting in 2004 was 9.1% (for 2005);
4.2% (for 2006); 9% (for 2007); 4.6% (for 2008); -1.8% (decrease in 2009); and 2.7% (for 2010).
Exercise 14.16 File: X14.16 - insurance claims.xlsx
(b) Ferderal Insurance showed a 8.6/91.4% (9.41%) increase from 2008 to 2010.
Baltic Insurance showed a 6.0/94% (6.4%) increase from 2008 to 2010.
Hence Federal Insurance showed the bigger claims increase from 2008 to 2010.
5
(e) Geometric mean Federal √(1.034*1.048*1.026*1.066*1.016) -1 = 3.785%
5
Baltic √(1.079*0.971*1.018*1.045*1.03) - 1 = 2.799%
Interpretation
The price of milk rose by 8.23%; bread by 4.71%; sugar by 11.87% and
maize meal by 6.48% per unit of measure from 2010 to 2011.
The largerst price change (increase) was sugar with a 11.87% increase.
On average, the price of the micro-basket of items increased by 7.21% from 2010 to 2011.
Quantity
(c) Food items 2010 2011
Relatives
Milk (litres) 117 98 83.8
Bread (loaves) 56 64 114.3
Sugar (kg) 28 20 71.4
Maize meal (kg) 58 64 110.3
Interpretation
The consumption of milk decreased by 16.2%; bread consumption rose by 14.3%;
sugar consumption decreased significantly by 28.6% and maize meal consumption
rose by 10.3% from 2010 to 2011 respectively.
The largest consumption change (decrease) was sugar with a 28.6% decrease.
It is interesting to note that sugar showed the largest unit price increase while
simultaneously recorded the largest decrease in consumption from 2010 to 2011.
(d) Paasche Weighted Average of Quantity (Consumption) Relatives Index
On average, consumption of the micro-basket items dropped by 6.4% from 2010 to 2011.
Exercise 14.18 File: X14.18 - utilities usage.xlsx
Price
Unit Price Unit Price
(a) Utilities relative
2008 2010
2010
Electricity 1.97 2.09 106.1
Sewage 0.62 0.72 116.1
Water 0.29 0.35 120.7
Telephone 1.24 1.06 85.5
Interpretation
From 2008 to 2010, electricity increased by 6.1%; sewage costs by 16.1%
water by 20.7%; while telephone costs decreased by 14.5% over this period.
Electricity showed the smallest change (increase) of 6.1% from 2008 to 2010.
Current Current
Base Value
Utilities Value Value
(2008)
(2009) (2010)
Electricity 1467.7 1527.3 1557.1
Sewage 42.2 46.2 49.0
Water 85.8 91.8 103.6
Telephone 1274.7 1213.0 1089.7
Totals 2870.4 2878.3 2799.3
Price Price
Base Value Weighted Weighted
Utilities relative relative
(2008) Ave (2009) Ave (2010)
(2009) (2010)
Electricity 1467.7 104.1 106.1 152782.4 155717.7
Sewage 42.2 109.7 116.1 4625.0 4894.8
Water 85.8 106.9 120.7 9176.3 10360.9
Telephone 1274.7 95.2 85.5 121353.3 108988.6
Totals 2870.4 287937.0 279961.9
Quantity
Usage Usage
(a) Utilities relative
2008 2010
2010
Electricity 745 977 131.1
Sewage 68 64 94.1
Water 296 378 127.7
Telephone 1028 1284 124.9
Interpretation
Consumption of electricity, water and telephone increased by 31.1%; 27.7% and
24.9% respectively from 2008 to 2010. Only sewage showed a decline in usage
by 5.9% from 2008 to 2010.
Current Current
Base Value
Utilities Value Value
(2008)
(2009) (2010)
Electricity 1467.7 1599.6 1924.7
Sewage 42.2 34.7 39.7
Water 85.8 92.2 109.6
Telephone 1274.7 1520.2 1592.2
Totals 2870.4 3246.8 3666.2
Quantity Quantity
Base Value Weighted Weighted
Utilities relative relative
(2008) Ave (2009) Ave (2010)
(2009) (2010)
Electricity 1467.7 109.0 131.1 159959 192468
Sewage 42.2 82.4 94.1 3474 3968
Water 85.8 107.4 127.7 9219 10962
Telephone 1274.7 119.3 124.9 152074 159213
Totals 2870.4 324726 366610
(c) Interpretation
On average, household consumption of utilities increased by 13.1% in 2009 from 2008
and also showed an overall consumption increase of 27.7% from 2008 to 2010.
Exercise 14.20 File: X14.20 - leather goods.xlsx
(b)
Composite cost index
120
110
100
Cost Index
90
80
60
2005 2006 2007 2008 2009 2010 2011
Interpretation
Prior to 2009, the average annual cost of leather goods inputs were below the 2009 level,
but showed a steady increase towards 2009 prices over this period.
Relative to 2009 unit costs, the cost of leather
goods inputs was higher by 8.4% and 4.7% respectively for 2010 and 2011.
(c) The average increase in unit costs of leather goods inputs was only 4.7% between
2009 and 2011.
The largest year-on-year change in overall unit costs of leather goods inputs was
between 2006 and 2007 with an increase of 8.7%.
6
(e) Geometric mean √(0.948*1.087*1.02*1.049*1.0841*0.966)
1.024244
(i.e. 2.424% increase on average per year)
=GEOMEAN(0.9485,1.087,1.02,1.049,1.0841,0.9655)
= 1.024244
Exercise 14.21 File: X14.21 - accountants' salaries.xlsx
(b) Interpretation
The base real salary is R406 (in R1000s). Since 2006, real salaries have
declined relative to 2006 (base) and are continuing to fall further behind inflation (CPI).
Interpretation
On a year-on-year basis, salary increases have lagged behind the inflation rate (CPI)
in all years except 2010 when salary adjustments exceeded CPI by 2.3%.
Exercise 14.22 File: X14.22 - school equipment .xlsx
(b) and (e) Plot and Interpretation of Re-based Cost Index Series
110
105
100
95
90
85
75
2003 2004 2005 2006 2007 2008 2009 2010
Interpretation
The average cost of school equipment has shown a steady increase of 3% to 5%
annually over the period 2003 to 2010.
Interpretation
The link relatives confirm the year-on-year increases in the average cost of school
equipment of between 3% to 5% p.a.
(d) The 2003 budget must be adjusted annually by the link relative (year-on-year) indexes.
Therefore multiply each previous year's budget by the next year's link relative index.
Interpretation
The coffee types of Java, Colombia and Sumatra increased by over 15% from
2007 to 2010, while Mocha increased by only 10.5% over this same period.
Interpretation
The cost of coffee imports has increased by 13.9% on average from 2007 to 2010.
(c) Cheaper.
The cost of coffee imports has increased by only 13.9% on average, since 2007.
(d) Laspeyres Composite Quantity Index (Weighted Aggregates approach)
Interpretation
The quantity of coffee imported has increased by 9.5% on average from 2007 to 2010.
Exercise 14.24 File: X14.24 - medical claims.xlsx
Interpretation
The number of claims received has increased by 18.34% from 2008 to 2010.
Quantity
(b) Claim type Claims (2008) Claims (2010)
relatives
GP's 20 30 150.0
Specialists 30 25 83.33
Dentists 10 15 150.0
Medicines 50 70 140.0
Interpretation
GP's and Dentists showed the biggest increase in number of claims (both 50% increase).
(c) Laspeyres Composite Price (Claims Value) Index (Weighted Aggregates approach)
(d) Interpretation
The value of claims received between 2008 and 2010 has risen by 11.6%.
Exercise 14.25 File: X14.25 - tennis shoes.xlsx
Interpretation
Dura's sales volume is down by 11.1% from 2009.
(c) Interpretation
The average increase in shoes sold from 2009 to 2010 was only 10.83%.
Overall, sales volumes do not meet the required growth of at least 12% p.a.
Exercise 14.26 File: X14.26 - energy fund.xlsx
Data
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fuel
cost 100.0 116.2 122.4 132.1 135.7 140.3 142.8 146.9 153.4 160.5
index
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fuel
cost 71.28 82.83 87.25 94.16 96.73 100.00 101.79 104.71 109.34 114.40
index
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fuel
cost 100.00 116.20 105.34 107.92 102.73 103.39 101.78 102.87 104.42 104.63
index
120.00
115.00
110.00
105.00
100.00
95.00
Fuel cost index
90.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(c) Geometric Mean 9√(1.162*1.0534*1.0792*1.0273*1.0339*1.0178*1.0287*1.0442*1.0463)
1.05397
Annual Average Increase = 5.3974% p.a. on average.
(d) Interpretation
Annual fuel cost increases and decreases were high in the period 2001 to 2004.
Thereafter, year-on-year increases were moderate and stable at between 3% to 5% p.a.
Exercise 14.27 File: X14.27 - motorcycle distributor.xlsx
Units Sold
Model 2007 2008 2009 2010 2011
Blitz 205 185 168 215 225
Cruiser 462 386 402 519 538
Classic 88 70 111 146 132
The price of the Cruiser model rose marginally (between 2% and 7%) for 2008
and 2009 relative to 2007; but rose strongly by 11.7% in 2010 and 21.9% in 2011.
120
110
100
90
80
70 Price Index
60
2007 2008 2009 2010 2011
(c) Interpretation
There has been a reasonably constant increase in the average price of motorcycles
over the past 5 years. In 2011, motorcycles cost 21.7% more on average than
they did in 2007.
Interpretation
The Classic model has shown a very modest year-on-year price increase of
between 2.3% and 7.6% between 2007 and 2011. In 2010, the annual
(year-on-year) increase was only 0.9% (less than 1%).
4
(e) Geometric Mean = √ (1.076*1.023*1.009*1.064) - 1= 4.263
Using Excel = GEOMEAN(link relatives) - 100 = 4.253
120
110
100
90
80
Quantity Index
70
60
2007 2008 2009 2010 2011
(g) Interpretation
Sales of motorcycles dropped for two years after 2007 (i.e. by 15.9% in 2008 and
by 6.8% in 2009). Thereafter unit sales, on average per model, increased by 20.7%
in 2010 relative to 2007; but performed at the same level in 2011 compared to 2010.
Exercise 14.28 File: X14.28 - tyre production.xlsx
Cost/Tyre 2010-Jan Feb March April May June July Aug Sept Oct Nov Dec
Passenger 210.69 212.47 210.73 218.14 219.22 216.19 225.92 234 229.89 222.76 223.96 200.3
Light truck 376.45 361.7 361.76 363.94 363.62 364.06 376.9 375.4 375.55 375.04 375.59 376.3
Giant truck 1171.1 1109.6 1101.8 1119.7 1127.2 1120.32 1162.8 1181 1157.7 1166.75 1157.7 1148
Output (1000's) 2010-Jan Feb March April May June July Aug Sept Oct Nov Dec
Passenger 78 102 93 81 105 100 117 105 98 110 97 43
Light truck 11 14 13 12 16 16 19 17 14 15 13 6
Giant truck 10 14 13 11 15 15 16 16 16 15 14 5
Cost relative
Jan Feb March April May June July Aug Sept Oct Nov Dec
index series
Passenger tyre 100.0 100.8 100.0 103.5 104.0 102.6 107.2 111.1 109.1 105.7 106.3 95.1
Interpretation
Passenger tyre costs increased steadily throughout the year reaching a peak of 11.1% above January
2010 levels in August. Thereafter costs declined steadily and ended the year 4.9% below the
starting level in January 2010.
(b) PRODUCTION COST ANALYSIS Laspeyres Composite Cost Index (Weighted Aggregates)
Jan Feb March April May June July Aug Sept Oct Nov Dec
Passenger 16433.82 16573 16437 17015 17099 16862.8 17622 18250 17931 17375.3 17469 15623
Light truck 4140.95 3978.7 3979.4 4003.3 3999.8 4004.66 4145.9 4129 4131.1 4125.44 4131.5 4139
Giant truck 11711 11096 11018 11197 11272 11203.2 11628 11812 11577 11667.5 11577 11479
Total Cost 32285.77 31647 31435 32216 32371 32070.7 33396 34192 33639 33168.2 33177 31241
Jan Feb March April May June July Aug Sept Oct Nov Dec
Composite Cost
100.0 98.0 97.4 99.8 100.3 99.3 103.4 105.9 104.2 102.7 102.8 96.8
Index
108.0
106.0
104.0
102.0
100.0
98.0
96.0
94.0
Composite Cost Index
92.0
Jan Feb March April May June July Aug Sept Oct Nov Dec
Interpretation
Composite tyre manufacturing costs declined or remained constant for the first 6 months
until June 2010. Thereafter, costs, on average increased by 6% over July and August
before being brought under control. By December, composite costs were 3.2% below
the beginning of the year levels.
(c) Link Relatives - Costs - Light Truck Tyres
Jan Feb March April May June July Aug Sept Oct Nov Dec
Light truck 376.45 361.7 361.76 363.94 363.62 364.06 376.9 375.4 375.55 375.04 375.59 376.3
Link Relatives 100.0 96.1 100.0 100.6 99.9 100.1 103.5 99.6 100.0 99.9 100.1 100.2
Interpretation
Light truck radial tyres costs have remained almost constant and unchanged throughout
the year with most adjustments not exceeding 0.5%. Only in Feb (decrease of 3.9%) and
July (increase of 3.5%) did costs fluctuate to any degree.
Jan Feb March April May June July Aug Sept Oct Nov Dec
Passenger 16433.82 21490 19594 17066 22122 21069 24651 22122 20648 23175.9 20437 9060
Light truck 4140.95 5270.3 4893.9 4517.4 6023.2 6023.2 7152.6 6400 5270.3 5646.75 4893.9 2259
Giant truck 11711 16395 15224 12882 17567 17566.5 18738 18738 18738 17566.5 16395 5856
Total Value 32285.77 43156 39712 34465 45712 44658.7 50541 47260 44656 46389.2 41726 17174
Jan Feb March April May June July Aug Sept Oct Nov Dec
Volume Index 100.0 133.7 123.0 106.8 141.6 138.3 156.5 146.4 138.3 143.7 129.2 53.2
(e) Interpretation
Production volumes of all three makes of tyres showed a steady increase above the January
level by up to nearly 60% over the first half of the year. However output showed a steady
decline in the second half of the year ending at only 53.2% of the beginning of the year levels.
CHAPTER 15
A FORECASTING TOOL
Exercise 15.6 Yes, averaging occurs over a longer time period (i.e. five periods)
producing a smoother curve.
Exercise 15.7 A seasonal index of 108 means that seasonal influences stimulate
the time series values by 8% above the trend / cyclical level.
250
coal mined (100 000 tonnes)
200
150
Coal Tonnage
100
Centred 4- year Moving
50 Average
Centred 5-year Moving
Average
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
years
(e) Interpretation
The annual tonnage of coal mined in the Limpopo province was constant for the first
7 years after which there was an expansion phase for the next 4 years. Thereafter coal
production has been declining steadily. This could be evidence of a cyclical effect
caused by economic cycles in the demand for coal worldwide.
Overall, a moderate upward cyclical trend.
Exercise 15.10 File: X15.10 - franchise dealers.xlsx
60
50
no. of new dealers
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10
time periods
b1 = ((10*2372)-(55*401))/(10*385-55²) = 2.0182
b0 = (401-2.0182*55)/10 = 29
ŷ= 29 + 2.0182 x x = 1, 2, 3, …, 10
x substitute into ŷ ŷ
11 29 + 2.0182 (11) 51.20
12 29 + 2.0182 (12) 53.22
13 29 + 2.0182 (13) 55.24
90
80
70
60
no. of claims
50
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
quarters
b0 = =(978-(-1.21765)*136)/16 71.475
1 in Q1 2008
ŷ= 71.475 - 1.21765 x x= 2 in Q2 2008
3 in Q3 2008
Interpretation
There is a downward trend in household policy claims over the past 4 years.
Uncentred 2x4 Centred 4
Unadjusted Adjusted
Time 4 period period period Seasonal
(c) Claims Seasonal Seasonal
Periods Moving Moving Moving ratios
Indexes Indexes
Total Total Average
2008 Q1 84
2008 Q2 53 272
2008 Q3 60 269 541 67.625 88.725 79.688 78.705
2008 Q4 75 273 542 67.75 110.701 121.667 120.166
2009 Q1 81 264 537 67.125 120.670 122.940 121.423
2009 Q2 57 262 526 65.75 86.692 80.702 79.706
2009 Q3 51 250 512 64 79.688
2009 Q4 73 230 480 60 121.667
2010 Q1 69 219 449 56.125 122.940
2010 Q2 37 223 442 55.25 66.968
2010 Q3 40 227 450 56.25 71.111
2010 Q4 77 236 463 57.875 133.045
2011 Q1 73 235 471 58.875 123.992
2011 Q2 46 221 456 57 80.702
2011 Q3 39
2011 Q4 63 Totals 404.996 400.000
Interpretation
Household policy claims tend to increase significantly in Quarters 1 and 4 of each year,
by about 20% on average, while there is a significant decline in claims during
Quarters 2 and 3 by about 20% on average.
x = 17 in Quarter 1 2012
Trend estimate ŷ= 71.475 - 1.21765 (17) = 50.77495
x = 18 in Quarter 1 2012
Trend estimate ŷ= 71.475 - 1.21765 (18) = 49.5573
Interpretation
The insurance company can expect to receive 62 and 40 (rounded) household policy
claims in the first and second quarters of 2012 respectively.
Exercise 15.12 File: X15.12 - hotel occupancy.xlsx
90
occupancy rate (%)
80
70
60
50
40
1 2 3 4 5 6 7 8 9 10
1 in Sept
ŷ= 84.933 - 2.09697 x x= 2 in Oct
3 in Nov
Interpretation
There is a downward trend in hotel occupancy over the past 10 months since September.
Interpretation
The continued downward trend is reflected in the next 2 month's projections.
Exercise 15.13 File: X15.13 - electricity demand.xlsx
(a), (e), (f) Line Graph - Electricity Demand for a City (Cape Town)
180
160
demand (1000 megawatts)
140
120
100
80
60
40
20
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
quarters (Q1 2008 - Q4 2011)
Interpretation
Electricity demand in Cape Town shows a clear seasonal pattern, peaking in quarter 3
and bottoming out in quarter 4 of each year.
1 in Q1 2008
ŷ= 20.8 + 4.95 x x= 2 in Q2 2008
3 in Q3 2008
(c)
Uncentred Centred 4
2x4 period Unadjusted Adjusted
Time 4 period period Seasonal
Demand Moving Seasonal Seasonal
Periods Moving Moving ratios
Total Indexes Indexes
Total Average
2008 Q1 21
2008 Q2 42 135
2008 Q3 60 149 284 35.5 169.01 178.65 175.61
2008 Q4 12 161 310 38.75 30.97 30.97 30.44
2009 Q1 35 192 353 44.125 79.32 79.32 77.97
2009 Q2 54 194 386 48.25 111.92 117.99 115.98
2009 Q3 91 198 392 49 185.71
2009 Q4 14 226 424 53 26.42
2010 Q1 39 271 497 62.125 62.78
2010 Q2 82 285 556 69.5 117.99
2010 Q3 136 324 609 76.125 178.65
2010 Q4 28 356 680 85 32.94
2011 Q1 78 380 736 92 84.78
2011 Q2 114 392 772 96.5 118.13
2011 Q3 160
2011 Q4 40 Totals 406.927 400.000
Interpretation
Electricity demand peaks in Q3 by 75% over the trend / cyclical level; and drops
to 70% below the trend /cyclical level during Q4.
Seasonally
Seasonal
Period x Trend ŷ adjusted
Index
Trend
Q3 2012 19 114.85 175.61 201.69
Q4 2012 20 119.8 30.44 36.47
Interpretation
Electricity demand in Cape Town is likely to peak at 201.69 megawatts in
Q3 of 2012 and bottom out at 36.47 megawatts in Q4 of 2012.
Exercise 15.14 File: X15.14 - hotel turnover.xlsx
Seaonal De-
(a) Actual
Index seasonalised
568 136 417.6
495 112 442.0
252 62 406.5
315 90 350.0
604 136 444.1
544 112 485.7
270 62 435.5
510 90 566.7
662 136 486.8
605 112 540.2
310 62 500.0
535 90 594.4
700
600
turnover (R millions)
500
400
300
200
1 in Summer 2008
ŷ= 435.64 + 5.6713 x x= 2 in Autumn 2008
3 in Winter 2008
Seasonally
Seasonal
Period x Trend ŷ adjusted
Index
Trend
Summer 2011 13 509.37 136 692.74
Autumn 2011 14 515.04 112 576.84
600
turnover (R millions)
500
400
300
quarters
Exercise 15.15 File: X15.15 - farming equipment.xlsx
60
55
50
45
Sales
40
35 Linear (Sales)
30
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Uncentred Centred 4
2x4 period Unadjusted Adjusted
4 period period Seasonal
Periods Sales Moving Seasonal Seasonal
Moving Moving Ratios
Total Indexes Indexes
Total Average
2008 Q1 57
2008 Q2 51 214
2008 Q3 50 217 431 53.88 92.81 92.61 92.63
2008 Q4 56 222 439 54.88 102.05 102.95 102.97
2009 Q1 60 225 447 55.88 107.38 107.38 107.40
2009 Q2 56 230 455 56.88 98.46 96.97 97.00
2009 Q3 53 235 465 58.13 91.18
2009 Q4 61 239 474 59.25 102.95
2010 Q1 65 244 483 60.38 107.66
2010 Q2 60 251 495 61.88 96.97
2010 Q3 58 250 501 62.63 92.61
2010 Q4 68 252 502 62.75 108.37
2011 Q1 64 252 504 63.00 101.59
2011 Q2 62 254 506 63.25 98.02
2011 Q3 58
2011 Q4 70 Totals 399.92 400
b1 = (16*8357-136*949)/(16*1496-136²) = 0.8544
1 in Summer 2008
ŷ= 52.05 + 0.8544 x x= 2 in Autumn 2008
3 in Winter 2008
Seasonally
Seasonal
Period x Trend ŷ adjusted
Index
Trend
Summer 17 66.57 107.40 71.50
Autumn 18 67.43 97.00 65.41
Winter 19 68.28 92.63 63.25
Spring 20 69.14 102.97 71.19
Interpretation
The company can expect to sell between 63 and 72 farming implements
each quarter during 2012 with the higher sales expected in Summer and Spring.
Exercise 15.16 File: X15.16 - energy costs.xlsx
(a), (e) and (f) Line Graph of Office Complex Energy Costs (in R100 000)
5
4.5
energy cost (R100 000)
4
3.5
3
2.5
2
1.5
1
1 2 3 4 5 6 7 8 9 10 11 12
quarters (2009 - 2011)
(b)
Interpretation
Energy costs rise by nearly 20% (19,5% and 17,6%) over the colder months of
Autumn and Winter, and decline by between 10% (in Spring) and almost 30%
(27%) in Summer.
(c) Period (x) Cost (y) x² xy
1 2.4 1 2.4
2 3.8 4 7.6
3 4 9 12
4 3.1 16 12.4
5 2.6 25 13
6 4.1 36 24.6
7 4.1 49 28.7
8 3.2 64 25.6
9 2.6 81 23.4
10 4.5 100 45
11 4.3 121 47.3
n = 12 12 3.3 144 39.6
Σ 78 42 650 281.6
2
b1 = [(12*281.6)-(78*42)]/[12*650-78 ] = 0.0601
1 in Summer 2009
ŷ= 3.1091 + 0.0601 x x= 2 in Autumn 2009
3 in Winter 2009
(d) Seasonally-adjusted trend estimate of Office Complex Energy Costs for 2012
Seasonally
Seasonal
Period x Trend ŷ adjusted
Index
Trend
Summer 13 3.89 72.97 2.84
Autumn 14 3.95 119.50 4.72
Winter 15 4.01 117.57 4.71
Spring 16 4.07 89.95 3.66
Interpretation
The office complex manager must budget between R284 000 and R472 000 each
quarter during 2012 with higher costs expected in the Autumn and Winter periods.
Exercise 15.17 File: X15.17 - business registrations.xlsx
2500
no. of new registrations
2000
1500
1000
500
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
(b) and (c) 4-Period Moving Average and Quarterly Seasonal Indexes
(b) (c)
2x4 Centred 4
Uncentred 4 Unadjusted Adjusted
Time New period period Seasonal
period Moving Seasonal Seasonal
Periods Registrations Moving Moving ratios
Total Indexes Indexes
Total Average
2007 Q1 1005
2007 Q2 1222 4724
2007 Q3 1298 4892 9616 1202.00 107.99 106.526 106.41
2007 Q4 1199 5041 9933 1241.63 96.57 98.514 98.41
2008 Q1 1173 5199 10240 1280.00 91.64 91.820 91.72
2008 Q2 1371 5376 10575 1321.88 103.72 103.568 103.46
2008 Q3 1456 5517 10893 1361.63 106.93
2008 Q4 1376 5677 11194 1399.25 98.34
2009 Q1 1314 5826 11503 1437.88 91.38
2009 Q2 1531 5980 11806 1475.75 103.74
2009 Q3 1605 6125 12105 1513.13 106.07
2009 Q4 1530 6265 12390 1548.75 98.79
2010 Q1 1459 6422 12687 1585.88 92.00
2010 Q2 1671 6569 12991 1623.88 102.90
2010 Q3 1762 6714 13283 1660.38 106.12
2010 Q4 1677 6880 13594 1699.25 98.69
2011 Q1 1604 7034 13914 1739.25 92.22
2011 Q2 1837 7176 14210 1776.25 103.42
2011 Q3 1916
2011 Q4 1819 Totals 400.429 400
(b) 4-Period Moving Average Line Graph and Original Data Line Graph
2000
no. of new businesses
1500
1000
New Registrations
500
Centred 4 period Moving
Average
0
Adjusted
Trend
Periods y Seasonal ŷ (adj)
Estimate ŷ
Indexes
2007 Q1 1005 91.72 1117.5 1025.0
2007 Q2 1222 103.46 1156.9 1196.9
2007 Q3 1298 106.41 1196.2 1272.9
2007 Q4 1199 98.41 1235.6 1215.9
2008 Q1 1173 91.72 1274.9 1169.3
2008 Q2 1371 103.46 1314.2 1359.7
2008 Q3 1456 106.41 1353.6 1440.3
2008 Q4 1376 98.41 1392.9 1370.8
2009 Q1 1314 91.72 1432.2 1313.7
2009 Q2 1531 103.46 1471.6 1522.5
2009 Q3 1605 106.41 1510.9 1607.8
2009 Q4 1530 98.41 1550.3 1525.6
2010 Q1 1459 91.72 1589.6 1458.0
2010 Q2 1671 103.46 1628.9 1685.3
2010 Q3 1762 106.41 1668.3 1775.2
2010 Q4 1677 98.41 1707.6 1680.5
2011 Q1 1604 91.72 1746.9 1602.3
2011 Q2 1837 103.46 1786.3 1848.1
2011 Q3 1916 106.41 1825.6 1942.6
2011 Q4 1819 98.41 1865.0 1835.3
(g) Plot of Actual vs Seasonally adjusted Trend estimates (New Business Registrations)
2000
no. of new registrations
1800
1600
1400
1200
1000 y ŷ (adj)
800
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
2008 Q3
2008 Q4
2009 Q1
2009 Q2
2009 Q3
2009 Q4
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
Comment
The seasonally adjusted trend estimates track the actual number of new business
registrations very closely. It is a good fitting graph.
(h) Seasonally-adjusted trend estimate of New Business Registrations (2012)
Seasonally
Seasonal
Period x Trend ŷ adjusted
Index
Trend
Q1 2012 21 1904.3 91.72 1746.6
Q2 2012 22 1943.6 103.46 2010.9
Q3 2012 23 1983.0 106.41 2110.1
Q4 2012 24 2022.3 98.41 1990.2
Exercise 15.18 File: X15.18 - engineering sales.xlsx
Seasonally
Seasonal
Quarter Trend ŷ Adjusted Trend
Index
Estimate ŷ(adj)
1 95 12 11.4
2 115 12 13.8
3 110 12 13.2
4 80 12 9.6
48 48
Exercise 15.19 File: X15.19 - Table Mountain.xlsx
40
35
30
25
20
15
10 Visitors
5 De-Seasonlised
0
Wi 2009 Sp 2009 Su 2009 Au 2009 Wi 2010 Sp 2010 Su 2010 Au 2010
Comment
The trend (after de-seasonalising the quarterly data) is only marginally upwards.
Seasonally
Quarter Seasonal Index Trend ŷ Adjusted Trend
Estimate ŷ(adj)
100
GDP (in R100 millions)
80
60
40
GDP (Millions)
20 Linear (GDP (Millions))
0
1 2 3 4 5 6 7 8 9 10 11
1 in 2001
(b) Trend line (see graph in (i)) ŷ = 41.964 + 5.2636 x x = 2 in 2002
3 in 2003
(c) Expected GDP for 2012 and 2013 (in R100 million)
Seasonal
(c) Periods
Indexes
Jan - Apr 112.65
May - Aug 97.79
Sept - Dec 89.56
(b)
30
25
20
15
10 Pelagic fish
5
3 Period Moving Ave
0
1 2 3 4 5 6 7 8 9 10 11 12
Comment
The trend in pelagic fish catches over the past 4 years is decidedly downwards.
(d) Period (x) Catch (y) x² xy
1 44 1 44
2 36 4 72
3 34 9 102
4 45 16 180
5 42 25 210
6 34 36 204
7 38 49 266
8 32 64 256
9 27 81 243
10 40 100 400
11 31 121 341
n = 12 12 28 144 336
Σ 78 431 650 2654
Seasonally
Period Seasonal
x Trend ŷ adjusted
2011 Index
Trend
Jan - Apr 13 29.21 112.65 32.91
May - Aug 14 28.18 97.79 27.56
Sept - Dec 15 27.15 89.56 24.32
Exercise 15.22 File: X15.22 - share price.xlsx
90
price (cents)
80
70
60
Share price
50
Trend Price
40
1 2 3 4 5 6 7 8 9 10 11
Conclusion
The trend estimate of the share price is likely to fall below 60c (the selling level)
by November of the same year if the downward trend continues uninterrupted.
Exercise 15.23 File: X15.23 - Addo park.xlsx
Seaonal De-
(a) Season Actual
Index seasonalised
Su 2008 196 112 175.0
Au 2008 147 94 156.4
Wi 2008 124 88 140.9
Sp 2008 177 106 167.0
Su 2009 199 112 177.7
Au 2009 152 94 161.7
Wi 2009 132 88 150.0
Sp 2009 190 106 179.2
Su 2010 214 112 191.1
Au 2010 163 94 173.4
Wi 2010 145 88 164.8
Sp 2010 198 106 186.8
(b) and (d) Line Plots of Actual and De-Seasonalised Visitor Numbers (by Season)
200
150
100
Actual
50
De-seasonalised
0
Su Au Wi Sp Su Au Wi Sp Su Au Wi Sp
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010
(c) Conclusion
There is a very slight upward trend in visitors to the Addo National Park. There is
almost no growth in visitors over the past 3 years.
Exercise 15.24 File: X15.24 - healthcare claims.xlsx
Uncentred Centred 4
2x4 period Unadjusted Adjusted
4 period period Seasonal
Periods Claims Moving Seasonal Seasonal
Moving Moving Ratios
Total Indexes Indexes
Total Average
2007 Q1 11.8
2007 Q2 13.2 60.5
2007 Q3 19.1 59.6 120.1 15.0125 127.23 139.67 136.28
2007 Q4 16.4 58.8 118.4 14.8 110.81 106.75 104.15
2008 Q1 10.9 62.1 120.9 15.1125 72.13 72.13 70.37
2008 Q2 12.4 63.5 125.6 15.7 78.98 91.41 89.19
2008 Q3 22.4 64.8 128.3 16.0375 139.67
2008 Q4 17.8 68.6 133.4 16.675 106.75 409.96 400
2009 Q1 12.2 70.3 138.9 17.3625 70.27
2009 Q2 16.2 67.1 137.4 17.175 94.32
2009 Q3 24.1 67.7 134.8 16.85 143.03
2009 Q4 14.6 66 133.7 16.7125 87.36
2010 Q1 12.8 62.7 128.7 16.0875 79.56
2010 Q2 14.5 64.2 126.9 15.8625 91.41
2010 Q3 20.8
2010 Q4 16.1
1 in Q1 2007
ŷ= 14.2 + 0.2066 x x= 2 in Q2 2007
3 in Q3 2007
Seasonally
Seasonal
Period x Trend ŷ adjusted
Index
Trend
Q1 2011 17 17.71 70.37 12.46
Q2 2011 18 17.92 89.19 15.98
Q3 2011 19 18.13 136.28 24.71
Q4 2011 20 18.33 104.15 19.09
Interpretation
Healthcare claims are expected to rise during 2011 from a low of
R12,46 (mill) in Q1 to R24,71 (mill) in Q3.
30
20
15
10
b1 = (7*408.7-28*93.9)/(7*140-282) = 1.1821
b0 = (93.9-1.182143*28)/7 8.6857
1 in 2005
ŷ = 8.6857 + 1.1821 x x= 2 in 2006
3 in 2007
(c)
Financial Services Sector
Advertising Expenditure y = 1.1821x + 8.6857
20
Adspend (in R10 millions)
18
16
14
12
10
8
1 2 3 4 5 6 7
(d) Trend line equation (using Excel 's Add Trendline function)
1 in 2005
ŷ = 8.6857 + 1.1821 x x= 2 in 2006
3 in 2007
(e) Year Time (x) Actual (y) Trend (ŷ)
2005 1 9.6 9.87
2006 2 11.8 11.05
2007 3 12 12.23
2008 4 13.6 13.41
2009 5 14.1 14.60
2010 6 15 15.78
2011 7 17.8 16.96
2012 8 18.14
20
adspend (in R10 million)
18
16
14
12
Actual (y)
10 Trend (ŷ)
8
1 2 3 4 5 6 7 8
240
220
200
no. of policies
180
160
140
120 Policies
100
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Interpretation
There is a distinct moderate downward trend in the number of surrendered policies
over the period 2008 - 2010. This reduction could be due to the improved client
communication strategy adopted by the company in recent years.
(b)
Uncentred Centred 4
2x4 period Unadjusted Adjusted
Time 4 period period Seasonal
Policies Moving Seasonal Seasonal
Periods Moving Moving ratios
Total Indexes Indexes
Total Average
2008 Q1 212
2008 Q2 186 795
2008 Q3 192 769 1564 195.5 98.21 97.84 97.99
2008 Q4 205 748 1517 189.625 108.11 107.47 107.62
2009 Q1 186 725 1473 184.125 101.02 100.62 100.77
2009 Q2 165 702 1427 178.375 92.50 93.49 93.62
2009 Q3 169 685 1387 173.375 97.48
2009 Q4 182 678 1363 170.375 106.82
2010 Q1 169 671 1349 168.625 100.22
2010 Q2 158 667 1338 167.25 94.47
2010 Q3 162
2010 Q4 178 Totals 399.41 400
Interpretation
Endowment policy surrenders are highest in Q4 by 7,62% over the quarterly average;
and lowest in Q2 by 6,38% below the quarterly average. There is very little - to none -
seasonal impact on policy surrenders in Q1 and only 2,01% below the quarterly
average in Q3.
(c) Period (x) Cost (y) x² xy
1 212 1 212
2 186 4 372
3 192 9 576
4 205 16 820
5 186 25 930
6 165 36 990
7 169 49 1183
8 182 64 1456
9 169 81 1521
10 158 100 1580
11 162 121 1782
n = 12 12 178 144 2136
Σ 78 2164 650 13558
1 in Q1 2008
ŷ= 203.42 - 3.5524 x x= 2 in Q2 2008
3 in Q3 2008
Seasonally
Seasonal
Period x Trend ŷ adjusted (Rounded)
Index
Trend
Q1 2011 13 157.24 100.77 158.45 158
Q2 2011 14 153.69 93.62 143.88 144
Q3 2011 15 150.13 97.99 147.12 147
Q4 2011 16 146.58 107.62 157.75 158
Exercise 15.27 File: X15.27 - company liquidations.xlsx
(a)
Period Liquidations 3-per M A 5-per M A
1 246
2 243 252.7
3 269 289.7 255.6
4 357 263.0 237.2
5 163 224.7 210.4
6 154 142.0 189.0
7 109 141.7 162.0
8 162 164.3 184.0
9 222 219.0 210.0
10 273 259.7 249.2
11 284 287.3 275.4
12 305 294.0 300.6
13 293 315.3 330.6
14 348 354.7 332.0
15 423 354.0 335.0
16 291 344.7 327.0
17 320 288.0 304.2
18 253 269.0 252.0
19 234 216.3 241.8
20 162 212.0 237.4
21 240 233.3 239.6
22 298 267.3 243.4
23 264 271.7 269.6
24 253 270.0 282.0
25 293 282.7 260.0
26 302 261.0
27 188
(b)
Company Liquidations
(Actual vs 3 and 5 period Moving Averages)
450
400
350
no. of liquidations
300
250
200
150
100
50
Liquidations 3-per M A 5-per M A
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27
periods
(c) Interpretation
The level of business liquidations shows no actual upward / downward trend over the
past 27 periods. There is a distinct cyclical pattern wih the longest lasting from
period 7 to period 20.
Exercise 15.28 File: X15.28 - passenger tyres.xlsx
Centred 4
Uncentred 4 Unadjusted Adjusted
Time 2x4 period period Seasonal
Tyre Sales period Seasonal Seasonal
Periods Moving Total Moving ratios
Moving Total Indexes Indexes
Average
2005 Q1 64876
2005 Q2 58987 240829
2005 Q3 54621 244699 485528 60691.0 90.00 90.64 90.72
2005 Q4 62345 252285 496984 62123.0 100.36 100.81 100.91
2006 Q1 68746 258591 510876 63859.5 107.65 107.65 107.76
2006 Q2 66573 267480 526071 65758.9 101.24 100.51 100.61
2006 Q3 60927 277522 545002 68125.3 89.43
2006 Q4 71234 282186 559708 69963.5 101.82
2007 Q1 78788 289357 571543 71442.9 110.28
2007 Q2 71237 292567 581924 72740.5 97.93
2007 Q3 68098 291438 584005 73000.6 93.28
2007 Q4 74444 296653 588091 73511.4 101.27 399.62 400.00
2008 Q1 77659 302011 598664 74833.0 103.78
2008 Q2 76452 306475 608486 76060.8 100.51
2008 Q3 73456 313379 619854 77481.8 94.80
2008 Q4 78908 318170 631549 78943.6 99.95
2009 Q1 84563 319592 637762 79720.3 106.07
2009 Q2 81243 327440 647032 80879.0 100.45
2009 Q3 74878 334433 661873 82734.1 90.50
2009 Q4 86756 338248 672681 84085.1 103.18
2010 Q1 91556 340405 678653 84831.6 107.93
2010 Q2 85058 333794 674199 84274.9 100.93
2010 Q3 77035 345161 678955 84869.4 90.77
2010 Q4 80145 356559 701720 87715.0 91.37
2011 Q1 102923
2011 Q2 96456
120000
80000
60000
1 in Q1 2005
(b) ŷ = 58114 + 1302 x x = 2 in Q2 2005
3 in Q3 2005
(b) Seasonally-adjusted Trend estimates of passenger car tyre sales (in units) for 2012 / 2013.
Seasonally
Time Seasonal Adjusted
Time Trend (ŷ)
Periods Indices Trend
Estimate
2012 Q1 29 95872 107.76 103312
2012 Q2 30 97174 100.61 97767
2012 Q3 31 98476 90.72 89337
2012 Q4 32 99778 100.91 100686
2013 Q1 33 101080 107.76 108924
2013 Q2 34 102382 100.61 103007
2013 Q3 35 103684 90.72 94062
2013 Q4 36 104986 100.91 105941
(c) Interpretation
The pattern of passenger car tyre sales is very stable.
The trend is linear and upward, and seasonal variations are consistent over time.
Hence Hillstone management could have high confidence in the estimates.
Exercise 15.29 File: X15.29 - outpatient attendances.xlsx
Uncentred Centred 4
2x4 period Unadjusted Adjusted
Time 4 period period Seasonal
Visits Moving Seasonal Seasonal
Periods Moving Moving ratios
Total Indexes Indexes
Total Average
2006 Q1 12767
2006 Q2 16389 64041
2006 Q3 19105 65472 129513 16189.1 118.01 117.31 117.46
2006 Q4 15780 68951 134423 16802.9 93.91 92.62 92.75
2007 Q1 14198 70745 139696 17462.0 81.31 78.99 79.10
2007 Q2 19868 73269 144014 18001.8 110.37 110.53 110.69
2007 Q3 20899 73712 146981 18372.6 113.75
2007 Q4 18304 74048 147760 18470.0 99.10
2008 Q1 14641 74227 148275 18534.4 78.99
2008 Q2 20204 72000 146227 18278.4 110.53
2008 Q3 21078 71434 143434 17929.3 117.56
2008 Q4 16077 72489 143923 17990.4 89.36 399.46 400.00
2009 Q1 14075 72378 144867 18108.4 77.73
2009 Q2 21259 72484 144862 18107.8 117.40
2009 Q3 20967 70821 143305 17913.1 117.05
2009 Q4 16183 71386 142207 17775.9 91.04
2010 Q1 12412 72569 143955 17994.4 68.98
2010 Q2 21824 74365 146934 18366.8 118.82
2010 Q3 22150 79370 153735 19216.9 115.26
2010 Q4 17979 78114 157484 19685.5 91.33
2011 Q1 17417 80274 158388 19798.5 87.97
2011 Q2 20568 85413 165687 20710.9 99.31
2011 Q3 24310 67996 153409 19176.1 126.77
2011 Q4 23118 47428 115424 14428.0 160.23
30000
25000
no. of patients
20000
15000
10000
Visits
5000
Linear (Visits)
0
1 3 5 7 9 11 13 15 17 19 21 23
1 in Q1 2006
ŷ = 15591 + 224.66 x x = 2 in Q2 2006
3 in Q3 2006
Seasonally
Time Seasonal Adjusted
Time Trend (ŷ)
Periods Indices Trend
Estimate
2012 Q1 25 21207.5 79.10 16775
2012 Q2 26 21432.2 110.69 23723
2012 Q3 27 21656.8 117.46 25438
2012 Q4 28 21881.5 92.75 20295
2013 Q1 29 22106.1 79.10 17486
2013 Q2 30 22330.8 110.69 24718
(c) Interpretation
The pattern of outpatient attendances at the Butterworth Clinic is very stable.
It shows a steady upward trend with highly consistent seasonal variations.
Demand increases in the winter months ((Q3) and is lowest in the summer months (Q1).
Exercise 15.30 File: X15.30 - construction absenteeism.xlsx
Construction Absenteeism
900
no. of days lsot
800
700
600
Days_lost
500
Linear (Days_lost)
400
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
(b) Seasonally-adjusted Trend estimates of Days Lost in Construction Industry for 2012.
Seasonally
Time Seasonal Adjusted
Time Trend (ŷ)
Periods Indices Trend
Estimate
2012 Q1 25 704.8 104.21 734
2012 Q2 26 694.9 96.98 674
2012 Q3 27 685.0 102.88 705
2012 Q4 28 675.1 95.93 648
(c) Interpretation
The pattern of days lost due to absenteeism in the Construction industry shows
a distinct downward trend but with inconsistent seasonal variations.
CHAPTER 16
FINANCIAL CALCULATIONS
Exercise 16.4 Nominal interest rate is the quoted per annum interest rate
Effective interest rate is the actual interest rate achieved
when interest is compounded more than once per year.
Exercise 16.6 Ordinary annuity - regular payments begin the first period of the annuity term
Deferred annuity - regular payments begin only at some future period into
the term of the annuity.
Exercise 16.7 Ordinary annuity certain - the series of regular payments take place at the
end of each payment period.
Ordinary annuity due - the series of regular payments take place at the
beginning of each payment period.
Exercise 16.8 NPV is the term used to convert all cash inflows (and outflows) over time
into present value terms by dividing by the annual rate of interest
It represents future cash flows in current terms.
Exercise 16.9
n = 8.0013 years
Exercise 16.16
Pv = 25000/(1+0.09/4)11 = R 19,572.37
n = log(30000/21353.4)/log(1+0.12) = 3 years
Exercise 16.21
Let Pv = R1 and Fv = R2
Pv = 8750*((1-(1+0.1/12)^(-(5*12)))/(0.1/12)) = R 411,821.98
Then compute Fv on the capital sum after 2 years until maturity (for 7 years).
Maturity value after 3 years R28 648.73 + R12 565.57 = R41 214.30
(a) Months 1 - 5
FV1 = 200*((1+0.12/12)5-1)/(0.12/12) = R1020.20
Withdrawal R 300.00
Balance R1020.20 - R300.00 = R 720.20
7
Compound Interest 720.2*(1+0.12/12) = R 772.15
Months 6 - 10
5
FV2 = 200*((1+0.12/12) -1)/(0.12/12) = R1020.20
Withdrawal R 300.00
Balance R1020.20 - R300.00 = R 720.20
Compound Interest 720.2*(1+0.12/12)2 = R 734.68
Months 11, 12
2
FV3 = 200*((1+0.12/12) -1)/(0.12/12) = R 402.00
7
=(-(FV(0.12/12,5,200,,0))-300)*(1+0.12/12) R 772.15
2
=(-(FV(0.12/12,5,200,,0))-300)*(1+0.12/12) R 734.68
=(-FV(0.01,2,200,,0)) R 402.00
(c) The student should select to repay at the beginning of every month.
Total repayment will be less than repaying at the end of every month.
Exercise 16.34
Present Value (Pv) of a Deferred Annuity
(-(36))
Factor 2 =(1-(1+0.16/12) )/(0.16/12) 28.44381
R= 30000/12.6779 = R2 366.32
n = LOG(1.51879)/LOG(1+0.12/12) = 42 months
The house owner will take 3 years and 6 months to save R103 757.98.
Exercise 16.37
INVESTMENT OPTIONS
Trucking Laundry
Initial investment (R) 60000 60000
Annual Cash Flow (R)
year 1 32000 0
year 2 38500 7500
year 3 26000 45000
year 4 13000 37500
year 5 9500 55500