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CMA Foundation · Fundamentals of Business Mathematics and Statistics · Correlation and Regression

For a firm, the regression equation of sales (Y, in ₹ lakh) on advertising expenditure (X, in ₹ lakh) is Y = 12 + 3X. What is the estimated sales when advertising expenditure is ₹ 5 lakh?

Estimated sales are ₹ 27 lakh. Putting advertising of 5 into the regression equation Y = 12 + 3X gives 12 plus 3 times 5, which is 12 plus 15, equal to 27 lakh.

  1. A₹ 15 lakh
  2. B₹ 20 lakh
  3. C₹ 27 lakhCorrect
  4. D₹ 32 lakh

Explanation

Substitute X = 5 into Y = 12 + 3X: Y = 12 + 15 = 27. Option ₹ 15 lakh results from using only 3X, and ₹ 20 lakh from 12 + 5 + 3, which ignores the multiplication of the slope.

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