CMA Intermediate · Financial Management and Business Data Analytics · Data Analysis and Modelling
A retailer in Pune fits a simple linear regression of monthly sales (Y, in ₹ lakh) on advertising spend (X, in ₹ lakh) and obtains Y = 40 + 5X. If advertising spend in a month is ₹6 lakh, what is the predicted sales figure?
Predicted sales are ₹70 lakh. The regression line adds the intercept of 40 to the slope of 5 multiplied by the advertising spend of 6, giving 40 plus 30. Leaving out the intercept would wrongly give 30.
- A₹70 lakhCorrect
- B₹46 lakh
- C₹30 lakh
- D₹75 lakh
Explanation
Substitute X = 6 into the equation: Y = 40 + 5 × 6 = 40 + 30 = 70. The option of 46 comes from adding 6 to 40 and ignoring the slope. The option of 30 uses only the slope term and omits the intercept.
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