Question #134
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 65
Status: Unattempted
Part of Context Group: Q133-134
Shared Context
Question
If Mercado determines that Model TWO is the appropriate specification, then he is essentially saying that for each year, value of sales from quarter three to four is expected to:
Answer Choices:
A. grow by more than $1,000,000
B. remain approximately the same
Explanation
The specification of Model TWO essentially assumes there is no difference attributed to
the change of the season from the third to fourth quarter. However, the time trend is
significant. The trend effect for moving from one season to the next is the coefficient on
TREND times $1,000,000 which is $852,182 for Equation TWO.
(Module 1.1, LOS 1.b)
In preparing an analysis of Treefell Company, Jack Lumber is asked to look at the company's
sales in relation to broad-based economic indicators. Lumber's analysis indicates that
Treefell's monthly sales are related to changes in housing starts (H) and changes in the
mortgage interest rate (M). The analysis covers the past 10 years for these variables. The
regression equation is:
S = 1.76 + 0.23H – 0.08M
Number of observations:
123
Unadjusted R2:
0.77
F-statistic:
9.80
Durbin-Watson statistic:
0.50
p-value of Housing Starts: 0.017
t-stat of Mortgage Rates:
–2.6
Variable Descriptions
S = Treefell Sales (in thousands)
H = housing starts (in thousands)
M = mortgage interest rate (in percent)
November 20X6 Actual Data
Treefell's monthly sales:
$55,000
Housing starts:
150,000
Mortgage interest rate (%): 7.5
Partial Chi-Square Table (5% Level of Significance)
Degrees of Freedom Critical Value
1
3.84
2
5.99
3
7.81
4
9.49
5
11.07
6
12.59