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Roll Number:
You as an Assistant Branch Manager of the Bank are entrusted the task of selecting two account holders for
sanctioning the loans. How you will select the two individuals among the 10 applicants to give the loan using
appropriate statistical techniques? Give proper justification for your selection.
Ans 1]
Taking sum of the minimum balances for each month we get the following data.
Average Minimum Balance = Sum of minimum balances for the year / 12
A/C A/C A/C A/C A/C A/C A/C A/C A/C A/C
Holde Holde Holde Holder Holde Holder Holde Holde Holde Holde
r1 r2 r3 4 r5 6 r7 r8 r9 r 10
Jan, 6000 56000 66000 86000 56000 59000 5900 5200 5300 56000
2008 0 0 0 0
Feb, 7000 76000 74000 96000 76000 96000 7800 7300 9800 76000
2008 0 0 0 0
Mar, 5500 110000 112000 190000 110000 120000 115000 112000 113000 120000
2008 0
Apr, 9000 89000 90000 98000 89000 97000 8700 9300 6600 89000
2008 0 0 0 0
May, 5600 88000 84000 84000 88000 98000 9000 8900 8700 86000
2008 0 0 0 0
Jun, 8000 52000 57000 57000 52000 57000 5500 5400 5900 72000
2008 0 0 0 0
Jul, 8200 58000 96000 66000 58000 56000 8600 5500 9800 98000
2008 0 0 0 0
Aug, 7900 95000 55000 93000 95000 98000 9900 9600 5900 95000
2008 0 0 0 0
Sept, 5100 86000 76000 74000 86000 88000 8900 9700 8700 84000
2008 0 0 0 0
Oct, 9500 90000 95000 99000 90000 99000 9500 9900 9500 90000
2008 0 0 0 0
Nov, 8200 82000 87000 84000 82000 88000 8700 8800 8600 82000
2008 0 0 0 0
Dec, 8300 55000 56000 57000 55000 59000 5900 5900 5200 53000
2008 0 0 0 0
Total 883,0 937,0 948,0 1,084,0 937,0 1,015, 999,0 967,0 953,0 1,001,
Bal 00 00 00 00 00 000 00 00 00 000
Avg. 73,583 78,083 79,000 90,333 78,083 84,583 83,250 80,583 79,417 83,417
Bal
By taking average minimum balance for the whole year of each customer we arrive at the
following conclusion.
Average Minimum Balance = Sum of min balances for the year / 12
Two account holders are selected who have maintained highest average minimum
balance.
From the above table we get,
A/C Holder 4 has maintained minimum average balance of Rs. 90,333 during the period
Jan. 2008 to Dec. 2008.
A/C Holder 6 has maintained minimum average balance of Rs. 84,583 during the period
Jan. 2008 to Dec. 2008.
A/C Holder 4 and A/C Holder 6 are selected for sanction of loan based on Average
Minimum Balance maintained by them during the period Jan. 2008 to Dec. 2008.
Set 2
1. What do you mean by sample survey? What are the different sampling methods? Briefly
describe them.
2. What is the different between correlation and regression? What do you understand by Rank
Correlation? When we use rank correlation and when we use Pearsonian Correlation Coefficient? Fit a
linear regression line in the following data –
X 12 15 18 20 27 34 28 48
Y 123 150 158 170 180 184 176 130
Ans 2]
Correlation
When two or more variables move in sympathy with other, then they are said to be
correlated. If both variables move in the same direction then they are said to be
positively correlated. If the variables move in opposite direction then they are said
to be negatively correlated. If they move haphazardly then there is no correlation
between them.
Correlation analysis deals with
1) Measuring the relationship between variables.
2) Testing the relationship for its significance.
3) Giving confidence interval for population correlation measure.
Regression
Regression is defined as, “the measure of the average relationship between two or
more variables in terms of the original units of the data.” Correlation analysis
attempts to study the relationship between the two variables x and y. Regression
analysis attempts to predict the average x for a given y. In Regression it is
attempted to quantify the dependence of one variable on the other. The dependence
is expressed in the form of the equations.
MB 0025 –Set 2 Page 4
Different between correlation and regression
Correlation and linear regression are not the same. Consider these differences:
Correlation quantifies the degree to which two variables are related.
Correlation does not find a best-fit line (that is regression). You simply are
computing a correlation coefficient (r) that tells you how much one variable
tends to change when the other one does.
With correlation you don't have to think about cause and effect. You simply
quantify how well two variables relate to each other. With regression, you do
have to think about cause and effect as the regression line is determined as
the best way to predict Y from X.
With correlation, it doesn't matter which of the two variables you call "X" and
which you call "Y". You'll get the same correlation coefficient if you swap the
two. With linear regression, the decision of which variable you call "X" and
which you call "Y" matters a lot, as you'll get a different best-fit line if you
swap the two. The line that best predicts Y from X is not the same as the line
that predicts X from Y.
Correlation is almost always used when you measure both variables. It rarely
is appropriate when one variable is something you experimentally
manipulate. With linear regression, the X variable is often something you
experimental manipulate (time, concentration...) and the Y variable is
something you measure.
The correlation answers the STRENGTH of linear association between paired
variables, say X and Y. On the other hand, the regression tells us the FORM
of linear association that best predicts Y from the values of X.
(2a) Correlation is calculated whenever:
* both X and Y is measured in each subject and quantifies how much they are
linearly associated.
* in particular the Pearson's product moment correlation coefficient is used
when the assumption of both X and Y are sampled from normally-distributed
populations are satisfied
* or the Spearman's moment order correlation coefficient is used if the
assumption of normality is not satisfied.
* correlation is not used when the variables are manipulated, for example, in
experiments.
(2b) Linear regression is used whenever:
* at least one of the independent variables (Xi's) is to predict the dependent
variable Y. Note: Some of the Xi's are dummy variables, i.e. Xi = 0 or 1,
which are used to code some nominal variables.
* if one manipulates the X variable, e.g. in an experiment.
Linear regression are not symmetric in terms of X and Y. That is
interchanging X and Y will give a different regression model (i.e. X in terms of
Y) against the original Y in terms of X.
On the other hand, if you interchange variables X and Y in the calculation of
correlation coefficient you will get the same value of this correlation
coefficient.
MB 0025 –Set 2 Page 5
The "best" linear regression model is obtained by selecting the variables
(X's) with at least strong correlation to Y, i.e. >= 0.80 or <= -0.80
The same underlying distribution is assumed for all variables in linear
regression. Thus, linear regression will underestimate the correlation of the
independent and dependent when they (X's and Y) come from different
underlying distributions.
Spearman's rank correlation coefficient or Spearman's rho, named after
Charles Spearman and often denoted by the Greek letter ρ (rho) or as rs, is a
nonparametric
measure of correlation – that is, it assesses how well an arbitrary
monotonic function could describe the relationship between two variables, without
making any other assumptions about the particular nature of the relationship
between the variables. Certain other measures of correlation are parametric in the
sense of being based on possible relationships of a parameterized form, such as a
linear relationship.
In principle, ρ is simply a special case of the Pearson product-moment coefficient in
which two sets of data Xi and Yi are converted to rankings xi and yi before
calculating the coefficient. In practice, however, a simpler procedure is normally
used to calculate ρ. The raw scores are converted to ranks, and the differences di
between the ranks of each observation on the two variables are calculated.
If there are no tied ranks, then ρ is given by:
where:
di = xi − yi = the difference between the ranks of corresponding values Xi and Yi, and
n = the number of values in each data set (same for both sets).
If tied ranks exist, classic Pearson's correlation coefficient between ranks has to be
used instead of this formula.
One has to assign the same rank to each of the equal values. It is an average of
their positions in the ascending order of the values.
MB 0025 –Set 2 Page 6
Conditions under which P.E can be used.
1. Samples should be drawn from a normal population.
2. The value of “r” must be determined from sample values.
3. Samples must have been selected at random.
X 12 15 18 20 27 34 28 48
Y 123 150 158 170 180 184 176 130
Linear Regression Line for the above data can be plotted as :
Total Numbers : 8
Slope (b) :0.16701
Y-Intercept (a) : 154.65
Regression Equation : 154.66 + 0.17x
3. What do you mean by business forecasting? What are the different methods of business
forecasting? Describe the effectiveness of time-series analysis as a mode of business forecasting.
Describe the method of moving averages.
Ans 3] Business forecasting refers to the analysis of past and present economic conditions
with the object of drawing inferences about probable future business conditions.
To forecast the future, various data, information and facts concerning to economic
condition of business for past and present are analyzed. The process of forecasting
includes the use of statistical and mathematical methods for long term, short term,
medium term or any specific term.
MB 0025 –Set 2 Page 7
Following are the main methods of business forecasting:-
1. Business Barometers
Business indices are constructed to study and analyze the business activities on the
basis of which future conditions are predetermined. As business indices are the
indicators of future conditions, so they are also known as “Business Barometers” or
“Economic Barometers‟. With the help of these business barometers the trend of
fluctuations in business conditions are made known and by forecasting a decision
can be taken relating to the problem. The construction of business barometer
consists of gross national product, wholesale prices, consumer prices, industrial
production, stock prices, bank deposits etc. These quantities may be concerted into
relatives on a certain base. The relatives so obtained may be weighted and their
average be computed. The index thus arrived at in the business barometer.
The business barometers are of three types:
i) Barometers relating to general business activities: it is also known as general
index of business activity which refers to weighted or composite indices of individual
index business activities. With the help of general index of business activity long
term trend and cyclical fluctuations in the „economic activities of a country are
measured but in some specific cases the long term trends can be different from
general trends. These types of index help in formation of country economic policies.
ii) Business barometers for specific business or industry: These barometers are used
as the supplement of general index of business activity and these are constructed to
measure the future variations in a specific business or industry.
iii) Business barometers concerning to individual business firm: This type of
barometer is constructed to measure the expected variations in a specific individual
firm of an industry.
2. Time Series Analysis is also used for the purpose of making business
forecasting. The forecasting through time series analysis is possible only when the
business data of various years are available which reflects a definite trend and
seasonal variation.
3. Extrapolation is the simplest method of business forecasting. By extrapolation,
a businessman finds out the possible trend of demand of his goods and about their
future price trends also. The accuracy of extrapolation depends on two factors: i)
Knowledge about the fluctuations of the figures, ii) Knowledge about the course of
events relating to the problem under consideration.
4. Regression Analysis
The regression approach offers many valuable contribution to the solution of the
forecasting problem. It is the means by which we select from among the many
possible relationships between variables in a complex economy those which will be
useful for forecasting. Regression relationship may involve one predicted or
MB 0025 –Set 2 Page 8
dependent and one independent variables simple regression, or it may involve
relationships between the variable to be forecast and several independent variables
under multiple regressions. Statistical techniques to estimate the regression
equations are often fairly complex and time-consuming but there are many
computer programs now available that estimate simple and multiple regressions
quickly.
5. Modern Econometric Methods
Econometric techniques, which originated in the eighteenth century, have recently
gained in popularity for forecasting. The term econometrics refers to the application
of mathematical economic theory and statistical procedures to economic data in
order to verify economic theorems. Models take the form of a set of simultaneous
equations. The value of the constants in such equations are supplied by a study of
statistical time series,
6. Exponential Smoothing Method This method is regarded as the best method
of business forecasting as compared to other methods. Exponential smoothing is a
special kind of weighted average and is found extremely useful in short-term
forecasting of inventories and sales.
7. Choice of a Method of Forecasting The selection of an appropriate method
depends on many factors – the context of the forecast, the relevance and
availability of historical data, the degree of accuracy desired, the time period for
which forecasts are required, the cost benefit of the forecast to the company, and
the time available for making the analysis.
Effectiveness of Time Series Analysis :
Time series analysis is also used for the purpose of making business forecasting.
The forecasting through time series analysis is possible only when the business data
of various years are available which reflects a definite trend and seasonal variation.
By time series analysis the long term trend, secular trend, seasonal and cyclical
variations are ascertained, analyzed and separated from the data of various years.
Merits:
i) It is an easy method of forecasting.
ii) By this method a comparative study of variations can be made.
iii) Reliable results of forecasting are obtained as this method is based on
mathematical model.
Method of Moving Averages
One of the most simple and popular technical analysis indicators is the moving
averages method. This method is known for its flexibility and user-friendliness. This
method calculates the average price of the currency or stock over a period of time.
The term “moving average” means that the average moves or follows a certain
trend. The aim of this tool is to indicate to the trader if there is a beginning of any
MB 0025 –Set 2 Page 9
new trend or if there is a signal of end to the old trend. Traders use this method, as
it is relatively easy to understand the direction of the trends with the help of moving
averages.
Moving average method is supposed to be the simplest one, as it helps to
understand the chart patterns in an easier way. Since the currency’s average price
is considered, the price’s volatile movements are evened. This method rules out the
daily fluctuation in the prices and helps the trader to go with the right trend, thus
ensuring that the trader trades in his own good.
We come across different types of moving averages, which are based on the way
these averages are computed. Still, the basis of interpretation of averages is similar
across all the types. The computation of each type set itself different from other in
terms of weightage it lays on the prices of the currencies. Current price trend is
always given a higher weightage. The three basic types of moving averages are viz.
simple, linear and exponential.
A simple moving average is the simplest way to calculate the moving price
averages. The historical closing prices over certain time period are added. This sum
is divided by the number of instances used in summation. For example, if the
moving average is calculated for 15 days, the past 15 historical closing prices are
summed up and then divided by 15. This method is effective when the number of
prices considered is more, thus enabling the trader to understand the trend and its
future direction more effectively.
A linear moving average is the less used one out of all. But it solves the problem of
equal weightage. The difference between simple average and linear average method
is the weightage that is provided to the position of the prices in the latter. Let’s
consider the above example. In linear average method, the closing price on the
15th day is multiplied by 15, the 14th day closing price by 14 and so on till the 1st
day closing price by 1. These results are totaled and then divided by 15.
The exponential moving average method shares some similarity with the linear
moving average method. This method lays emphasis on the smoothing factor, there
by weighing recent data with higher points than the previous data. This method is
more receptive to any market news than the simple average method. Hence this
makes exponential method more popular among traders.
Moving averages methods help to identify the correct trends and their respective
levels of resistance.
4. What is definition of Statistics? What are the different characteristics of statistics? What are the
different functions of Statistics? What are the limitations of Statistics?
5. What are the different stages of planning a statistical survey? Describe the various methods for
collecting data in a statistical survey.
6. What are the functions of classification? What are the requisites of a good classification? What
is Table and describe the usefulness of a table in mode of presentation of data?