A regression analysis of company profits and the amount of money the company spent on advertising found $ r^{2}=0.72 $. Which of these is true?
I. The model can correctly predict the profit for 72% of companies.
II. On average, about 72% of a company's profit results from advertising. III. On average, companies spend about 72% of their profits on advertising.
A) II only
B) none
C) I and III
D) I only
E) III only

Question

Quizplus · Accepted Answer

The $ r^{2} $ value (coefficient of determination) indicates the proportion of the variance in the dependent variable that is predictable from the independent variable. It does not imply causation or the exact nature of the relationship, such as profit resulting from advertising or the percentage of profit spent on advertising. Therefore, none of the statements are correct interpretations of $ r^{2}=0.72 $.

A Regression Analysis of Company Profits and the Amount of Money