An investment analyst collected data of 20 randomly chosen companies. The data consisted of the 52-week-high stock prices, PE ratios, and the market values of the companies. These 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. Produce two scatter plots: (1) market value versus stock price and (2) market value versus PE ratio. Do the scatter plots support the analyst’s decision to produce a second-order polynomial? Support your assertion with statistical reasoning.
b. Use forward selection stepwise regression to eliminate any unneeded components from the analyst’s model.
c. Does forward selection stepwise regression support the analyst’s decision to produce a second-order polynomial? Support your assertion with statistical reasoning.