An investment analyst collected data from 20 randomly chosen companies. The data consisted of the 52-week-high stock prices, PE ratios, and the market values of the companies. This data are in the file titled Investment.
The analyst wishes to produce a regression equation to predict the market value using the 52-week-high stock price and the PE ratio of the company. He creates a complete second-degree polynomial.
a. Construct an estimate of the regression equation using the indicated variables.
b. Produce the appropriate residual plots to determine if the polynomial function is the appropriate regression function for this data set.
c. Use a residual plot to determine if the residuals have a constant variance.
d. Produce the appropriate residual plot to determine if the residuals are independent. Assume the data were extracted in the order listed.
e. Construct a probability plot to determine if the error terms are normally distributed.