Question

Company	Year	Rating	Price
3M (MMM)	1976	**	192.36
American Express (AXP)	1982	***	79.25
Apple (AAPL)	2015	***	139.99
Boeing (BA)	1987	***	180.10
Caterpillar (CAT)	1991	**	92.91
Chevron Corp. (CVX)	2008	**	107.68
Cisco Systems (CSCO)	2009	**	34.23
Coca-Cola (KO)	1987	****	42.03
Disney (DIS)	1991	****	111.76
DuPont (DD)	1935	**	81.25
ExxonMobil (XOM)	1928	***	82.00
General Electric (GE)	1907	***	29.28
Goldman Sachs (GS)	2013	**	243.94
Home Depot (HD)	1999	**	149.60
Intel (INTC)	1999	**	35.27
IBM (IBM)	1979	***	175.65
Johnson & Johnson (JNJ)	1997	**	128.06
JPMorgan Chase (JPM)	1991	**	90.68
McDonald's (MCD)	1985	***	128.64
Merck (MRK)	1979	***	63.90
Microsoft (MSFT)	1999	***	64.87
Nike (NKE)	2013	***	57.80
Pfizer (PFE)	2004	****	34.32
Proctor & Gamble (PG)	1932	***	91.00
Travelers (TRV)	2009	***	123.14
United Technologies (UTX)	1939	***	113.45
UnitedHealth (UNH)	2012	**	169.70
Verizon Comm. (VZ)	2004	***	50.39
Visa (V)	2013	****	90.24
Wal-Mart (WMT)	1991	****	69.89

1 1. Use "DOW_Characteristics" data in Chapter1.xlsx to answer the following questions. For questions that require Excel, include the appropriate output (copy + paste) along with an explanation. Data description: The accompanying table shows a portion of the 30 companies that comprise the Dow Jones Industrial Average (DJIA). The second column shows the year that the company joined the DJIA (Year). The third column shows each company’s Morningstar rating (Rating). (Five stars is the best rating that a company can receive, indicating that the company’s stock price is undervalued and thus a very good buy. One star is the worst rating a company can be given, implying that the stock price is overvalued and a bad buy.) Finally, the fourth column shows each company’s stock price as of March 17, 2017 (Price in $).

Questions: a. Are data in the table from a sample or from a population? Explain.

b. Are data in the table time series data or not? Explain

c. What is the measurement scale of the Year data? What are the strengths of this type of data? What are the weaknesses?

d. What is the measurement scale of Morningstar’s star-based rating system? Summarize Morningstar’s star-based rating system for the companies in tabular form. Let 5 denote *****, 4 denote ****, and so on. What information can be extracted from these data?

e. What is the measurement scale of the Stock Price data? What are its strengths?

f. List the qualitative and quantitative variables in the data table.

Answer 1

a.

The data in the table are from a population because the given 30 companis make up the Dow Jones Industrial Average (DJIA) as on given date and it is the population of interest itself as on that date.

b.

The data in the table are not time series data because there is no consistent time interval between each data point, i.e., there is no time order.

c.

Here, the measurement scale of the "Year" data is "Interval" because it has a meaningful order(from that year to current year of 2017) and has the quality of equal intervals between different years(1980 to 1981 is one year and 1981 to 1982 is one year) and treated as discrete as we are not bothered of in between values(months).

However, it can also be categorical depending on the context such as year 1, year 2, year 3, whatever may that year be.

Strength: It is more informative when used as interval than those of ordinal and nominal (i.e., categorical) data.

Weakness: There is no natural 0 point for interval measure. So, the scale of 0 may not mean that the participant actually made 0 but that the scale doesn't measure it and thus, score of 0 is difficult to interpret directly. It is relatively difficult to say whether 'year' is a categorical or interval measure.

d.

The measurement scale of Morningstar’s star-based rating system is "Ordinal" because it is a qualitative measure with an order (ordered categories) from 1 to 5.

Rating (stars)	Meaning
5	Best performance
4	Good performance
3	Average performance
2	Bad performance
1	Worst performance

For example: If a company's stock is rated 5 stars, it indicates that the stock is undervalued and so, it is a good buy. If a company's stock is rated 1 star, it indicates that it is overvalued and thus, not a good buy.

The rating is based on various performances of the company.

e.

The measurement scale of the Stock Price data is "ratio level" because it is quantitative (having numerical value) and has a true 0 point (stock price of $0 is possible and natural).

Strengths: It is the best among all 4 levels of measure (nominal, ordinal, interval and ratio) because it is useful for comparison of data points and a value of 0 actually represents that the participant scored 0 points. So, it makes easy for direct interpretation. The mathematical operations of addition, subtraction, multiplication and division can be done.

f.

Qualitative variables are: Company and Rating.

Quantitative variables are: Year and Price.