A mortgage department of a large bank is studying its recent loans. Of particular interest is
how such factors as the value of the home (in thousands of dollars), education level of the
head of the household, age of the head of the household, current monthly mortgage payment
(in dollars), and gender of the head of the household (male _ 1, female _ 0) relate to
the family income. Are these variables effective predictors of the income of the household?
A random sample of 25 recent loans is obtained.
(see the attached chart)
a. Determine the regression equation.
b. What is the value of R2? Comment on the value.
c. Conduct a global hypothesis test to determine whether any of the independent variables
are different from zero.
d. Conduct individual hypothesis tests to determine whether any of the independent variables
can be dropped.
e. If variables are dropped, recompute the regression equation and R2.
Solution uses the given data to determine the regression equation and R2 value as well as conducting global and individual hypothesis tests.