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Regression Involving Binary Independent Variable

The following data gives the starting salary for students who recently graduated from a local university and accepted jobs soon after graduation. The starting salary, grade jobs soon after graduation. The starting salary, grade- point average (GPA), and major (business or other) are provided.
Salary $29,500 $46,000 $39,800 $36,500
GPA 3.1 3.5 3.8 2.9
Major Other Business Business Other
Salary $42,000 $31,500 $31,500
GPA 3.4 2.1 2.5
Major Business Other Business

A) Using a computer, develop a regression model that could be used to predict starting salary based on GPA and major.
B) Use this model to predict the starting salary for a business major with a GPA of 3.0.
C) What does the model say about the starting salary for a business major compared to a non-business major?
D) Do you believe this model is useful in predicting the starting salary? Justify your answer using information provided in the computer output.


Solution Summary

This solution provides an example of multiple linear regression involving a binary independent variable. The regression model has been estimated to the given data, by using Data Analysis Tool of M.S Excel and it is then used for prediction.
The statistical significance of the estimated model is discussed by using R2 value, F value, t values and the corresponding p value. The Excel file in which the analysis is done is also provided as an attachment