CMA Foundation · Fundamentals of Business Mathematics and Statistics · Correlation and Regression
The total variation in the sales (Y) of a Chennai retailer is 200 (in squared units). If the correlation between Y and the number of customers (X) is 0.5, what is the unexplained variation in Y?
The coefficient of determination is 0.5 squared, or 0.25, so 25 percent of the total variation of 200, which is 50, is explained by customers. The unexplained variation is the rest, 200 minus 50, which equals 150.
- A150Correct
- B50
- C100
- D175
Explanation
The coefficient of determination is 0.5² = 0.25, so the explained variation is 0.25 × 200 = 50. The unexplained variation is 200 − 50 = 150. The value 50 is wrong because it is the explained part.
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