1.

[78 Marks] In the Trans-Alaska Pipeline System, the quality of oil is measured
in API gravity degrees - the higher the degree the better the quality. The pipeline
mixes oils of various degrees and shippers receive different oils than the one
purchased. Therefore there is a need to determine a compensation scheme to apply
when there is a difference of degrees between what is ordered and what is shipped.

a) Study relationship; determine regression line and draw scatter plot (Excel is
required)
13.5
13

f(x) = 0.09x + 9.44

R = 0.92

12.5

Price($/barrel)

12
11.5
11
26

28

30

32

34

36

38

40

42

Degrees

b) Compute coefficients (manual approach)

^y =b 0+ b1 x
n

x i=27+ 28.5+30.8+31.3+31.9+34.5+34 +34.7+37+ 41.1+41+38.8+39.3=449.9

i=1
n

y i=12.02+12.04 +12.32+ 12.27+12.49+12.7+12.8+13+13+ 13.17+13.19+13.22+13.27=165.49

i=1

x i yi =( 2712.02 )+( 28.512.04 )+ (30.812.32 ) +( 31.312.27 ) +( 31.912.49 ) + ( 34.512.27 ) + ( 3412.8 ) + ( 34.

i=1

x =15, 826.67

y 2i =2,109.19

2
i

i=1

s xy =

s 2x =

1
n1

1
n1

i=1

xi yi

x i y i i=1
i=1

x 2i

i=1

i =1

i=1

( x i )
n

(449.9)(165.49)
1
5,751.60
=0.083 [ 5,751.605,727.22 ] =2.03
131
13

(449.9)
1
15,826.67
=0.083 [ 15,826.6715,570 ] =21.3
131
12

xi

449.9
x = i=1 =
=34.6
n
13
n

yi

165.49
y = i=1 =
=12.73
n
13

b1 =

s xy
2

2.03
=0.96
21.3

b0 = y b 1 x =12.73( 0.096 ) ( 34.6 )=12.733.32=9.41

^y =b 0+ b1 x

9.41+0.96 x

^y =0.96 x +9.41

c) Interpret coefficients computed in part b

The slope coefficient ( b1 ) is 0.96, which means that for each additional degree
of quality, the price of the barrel should increase by an average of $9.41/barrel.
The intercept ( b0 ) is 0.96. It is the point at which the regression line and the yaxis intersect. This means that when x=0 the price per barrel starts from $0.96 per
barrel.
2

d) Compute standard error of estimate (manual approach)

s2 y=

1
n1

y 2i

i =1

i=1

( y i)

s2xy

(165.49)
1
2,109.19
=0.083 [ 2,109.192,106.68 ] =0.20
131
13

( 2.03 )2
SSE=( n1 ) s 2 =( 131 ) 0.2
=12 ( 0.20.19 )=0.12
21.3
sx

s =

2
y

SSE
0.12
=
=0.10
n2
132

e) Interpret standard error of estimate computed in part d

Since s =0.10 , we can consider the fit excellent. In addition, we can judge the
value of standard error of estimate by comparing it to the values of the dependent
variable y or more specifically to the sample average y . In this example,
because standard error of estimate is 0.10 and average y is 12.73, it does appear
that the standard error of estimate is small, 0.10/12.73 =0.83%. Therefore, we can
say that the linear model is likely to be an effective analytical tool and forecasting
tool.
f) Compute coefficient of determination (manual approach)
2

s
(2.03)2
4.12
R = 2 xy2 =
=
=0.96
s x s y 21.30.2 4.26
2

g) Interpret coefficient of determination computed in part f

We found coefficient of determination 0.96. This statistic tells us that 96% of the
variation in the price of the oil is explained by the variation in the quality of the oil.
The remaining 4% is unexplained.
h) Test at 5% significance the slope of the regression line.
H0
: 1=0
H 0 : 1 0

degree of freedom=n2=132=11

t 0.05 =2.77
2

sb =
1

(n1) s

t stat =

2
x

0.10
=0.0063
( 131 ) 21.3

b 1 1 0.960
=
= 152.38
sb
0.0063
1

We should reject H 0 . There is a linear relation between quality of the oil and
price per barrel.
i) At 5% significance estimate the confidence interval of coefficients.
1=b1 t s b

0.97

1=0.96 (2.77 )( 0.0063 )=0.96 0.017

0.94

We can say with a 95% confidence, that the slop of the regression line is a number
lower than 0.97 and higher than 0.94.
2. [22 Marks] The computer output for the simple regression model is shown
below. However, some of the results are not shown. There are indicated by the
boldface letter a to k. Fill in the missing results (up to f decimal places). Clearly
provide formula and calculations.

a.

r= R2

b.

R 2=

c.

S =

0.43=0.658

SSR
0.03563
0.03563
=
=
=0.43
SSR+ SSE
0.03563+0.15409
0.18972
SSE
n2

0.15409
=0.0741
302

d. df=1
e. e = n 1= 30 1 = 29
f. Total SS = SSR + SSE = 0.18972
SSE = 0.18972 SSR = 0.18972 0.03563 = 0.15409
g. MSR =

SSR 0.03563
=
=0.0563
1
1
SSE

h. MSE = n2 =
i.

F stat =

0.15409
=0.0055
302

MSR 0.15409
=
=28.01
MSE 0.0055

j.

k.

2.55953=

b1
Sb1

b1=2.55953Sb 1=2.551.29111=3.292

l.

1.09=
S b 0=

b0
Sb 0
b0
0.37170
=
=0.341
1.09
1.09