Question

In 2011 home prices and mortgage rates dropped so low that in a number of cities the monthly cost of owning a home was less expensive than renting. The following data show the average asking rent for 10 markets and the monthly mortgage on the median priced home (including taxes and insurance) for 10 cities where the average monthly mortgage payment was less than the average asking rent (The Wall Street Journal, November 26–27, 2011). Click on the webfile logo to reference the data.

City	Rent ($)	Mortgage ($)
Atlanta	840	539
Chicago	1062	1002
Detroit	823	626
Jacksonville, Fla.	779	711
Las Vegas	796	655
Miami	1071	977
Minneapolis	953	776
Orlando, Fla.	851	695
Phoenix	762	651
St. Louis	723	654

Enter negative values as negative numbers. a. Develop the estimated regression equation that can be used to predict the monthly mortgage given the average asking rent (to 2 decimals). The regression equation is: Mortgage ($) =  +  Rent ($) b. Choose a residual plot against the independent variable. SelectScatter diagram 1Scatter diagram 2Scatter diagram 3None of these choicesItem 3 c. Do the assumptions about the error term and model form seem reasonable in light of the residual plot? SelectRelationship is significant and should assume a linear relationship, due to residual plot.Relationship is significant but shouldn't assume a linear relationship, due to residual plot.Relationship is not significant and should assume a linear relationship, due to residual plot.Relationship is not significant and shouldn't assume a linear relationship.Item 4

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Question 9 of 10

Exercise 12.49

Answer 1

a)

Excel > Data > Data Analysis > Regression

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.869565051
R Square	0.756143377
Adjusted R Square	0.725661299
Standard Error	78.7819141
Observations	10
ANOVA
	df	SS	MS	F	Significance F
Regression	1	153961.6801	153961.6801	24.80616254	0.001078711
Residual	8	49652.71992	6206.58999
Total	9	203614.4
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	-197.9583149	187.6949928	-1.054680852	0.322379429	-630.7837445	234.8671148	-630.7837445	234.8671148
Rent ($)	1.06992877	0.214820179	4.980578534	0.001078711	0.57455255	1.56530499	0.57455255	1.56530499
RESIDUAL OUTPUT
Observation	Predicted Mortgage ($)	Residuals
1	700.781852	-161.781852
2	938.3060389	63.69396107
3	682.5930629	-56.59306289
4	635.516197	75.48380299
5	653.7049861	1.295013904
6	947.9353979	29.06460214
7	821.683803	-45.68380299
8	712.5510684	-17.55106845
9	617.3274079	33.67259209
10	575.6001859	78.39981412

Mortgage ($) = -197.96 + 1.07 * Rent ($)

b)

c)

Relationship is significant and should assume a linear relationship, due to residual plot

data points are randomly spread around X axis