Questions:

  1. Describe the association between “DJIA price” and “Years Since 1930”.
  1. What is the equation for your linear model? (Use descriptive variables)
  1. Interpret the slope of the line in context.
  1. Does the y-intercept of your model have a meaningful interpretation or is it just a hypothetical base value? Explain.
  1. Look at the residuals plot for your linear model. Do you have any concerns about predictions made by your model? Explain.
  1. What is the equation of your new model? (Use descriptive variables)
  1. Interpret the slope of the line in context.
  1. This time, does the y-intercept of your model have a meaningful interpretation? Explain.
  1. The residuals plot for your transformed model still doesn’t look perfect, but has it improved? How do you feel about the appropriateness of your new model?
  1. What is the correlation for your transformed data? What does this indicate about the association?
  1. What is R2 for your transformed data? Interpret this value in context.
  1. Use your model to make a prediction about the Dow price in July of 2012.
  1. You will most likely retire some time between 2040 and 2050. What does your model predict for the Dow price in 2045? Comment on the appropriateness of this prediction.
  1. What is the equation of the exponential model that Microsoft Excel fit to the original data?
  1. Use the exponential model to make a prediction about the Dow price in 2012. Compare it to the prediction made by your model. Are they close?
  1. Calculate the y-intercept of your model and the y-intercept of the exponential model. Are they close? Are these predictions lower or higher than the actual Dow price on that date?
  1. Recently, concerns about the U.S. economy, unemployment rate, national debt, foreign relations, the world economy, financial troubles in countries like Greece and China, climate change, and population expansion, among others have led many to question whether common stocks will continue to grow at 10-12% as we move into the future. Soon, you will have finished college, secured a position in a fulfilling career, and started earning a rewarding salary. You, too, will have to make decisions about the best way to invest your hard earned money in order to insure that you have a healthy nest egg to retire on. You’ve just studied the trend of the broader market over an 80-year period that included numerous wars, periods of political unrest, economic recessions, energy crises, population shifts, and corporate scandals (just to name a few). So, are you convinced? How do you feel about the strength of this trend? Will the market continue to reward you the way it rewarded long-term investors of the previous century? Or, will these new troubling developments send you seeking other methods of investment? Explain.