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Statistics

Question
(a) A market research firm is studying the relationship between monthly income of a household and three factors viz. the mortgage payment for the household, the value of the family car and the age of the breadwinner. A random sample of 19 households was surveyed with a view to testing the model: INCOME = + MORTGAGE + VALUE + AGE where INCOME = Monthly Household Income (in dollars), MORTGAGE = Mortgage Payment (in dollars), VALUE = Value of the family car (in dollars) and AGE = Age of the households breadwinner (in years). The data pertaining to the 19 households were processed using MINITAB and the following is an extract of the output obtained:
The regression equation is ********* Predictor Coef StDev t-ratio Constant -424.3 928.8 * MORTGAGE 1.686 ** 2.71 VALUE 0.157 0.274 5.73 AGE 42.51 24.32 1.75 S = 335.5 R-sq = 75.8% R-sq(adj) = 70.9% Analysis of Variance Source DF SS MS F p Regression 3 5430941 1810314 15.66 0.000 Error 3 1733741 115583 Total 19 7164682

i) Write out the regression equation. ii) INCOME = 1.6826 MORTGAGE + 0.157 VALUE + 42.51 AGE 424.3 ii) Fill in the missing values * and ** * t-ratio = (Coeff 0)/ StDev = -424.3/928.8 = -0.4568 ** St Dev = (Coeff 0)/t-ratio = 1.686/2.71 = 0.622 iii) Is significant? Ho: = 0 (Insignificant) H1: 0. (Significant) Decision Rule: Reject H0 if p-value < Do not Reject H0 otherwise t-ratio = 2.71 p-value = 2 P( T > 2.71) where T belongs to t-distribution with 17 df. P( T > 2.71) lies between .005 and .010 Thus p-value lies between 0.010 and 0.020 We must reject H0 for all the conventional levels of significance greater than 2%. is significant. iv) Is significantly different from 0.2? Ho: = 0.2 (Insignificantly Different from 0.2) H1: 0.2. (Significantly Different from 0.2) Decision Rule: Reject H0 if p-value < Do not Reject H0 otherwise t-ratio = (Coeff 0.2)/ StDev = (-0.157- 0.2)/0.274 = -1.303 p-value = 2 P( T < -1.303) where T belongs to t-distribution with 17 df. P( T < -1.303) lies between .010 and .25

Thus p-value lies between 0.20 and 0.50 We do not reject H0 for all the conventional levels of significance less than than 10%. is not significantly different from 0.2. v) Perform the F test, making sure to state the null and alternative hypotheses. Ho: = = = 0 (Model is Insignificant) H1: , and are not all zero. (Model is Significant) Decision Rule: Reject H0 if p-value < Do not Reject H0 otherwise P-value = 0.0000 which is less than for all conventional levels of significance below 10%. Thus we reject H0 for levels of significance below 10%. Conclusion: The coefficients are not all zero. Hence the model is significant. vi) Give an interpretation to the term R-sq and comment on its value. 75.8% of the variation in INCOME can be explained by the independent variables MORTGAGE, VALUE & AGE. This model is good for forecasting INCOME.

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