UKEQ1023 Quantitative Techniques II

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ACCOUNTANCY AND MANAGEMENT
TUTORIAL 11 & 12 (Answer)

1. An agent for a residential real estate company in a large city would like to be able to
predict the monthly rental cost for apartments based on the size of the apartment as
defined by square footage. A sample of 25 apartments in a particular residential
neighbourhood was selected, and the information gathered revealed the following:

Table 1
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.850060796
R Square 0.722603356
Adjusted R
Square 0.710542633
Standard Error 194.5953946
Observations 25

ANOVA
Significanc
  df SS MS F eF
Regression 1 2268776.545 2268777 59.91376 7.52E-08
Residual 23 870949.4547 37867.37
Total 24 3139726      

Standard Upper
  Coefficients Error t Stat P-value Lower 95% 95%
Intercept 177.1208202 161.0042766 1.1001 0.28267 -155.941 510.1831
Size 1.065143906 0.137608412 7.740398 7.52E-08 0.78048 1.349808

a. State the simple linear regression model.

b. Interpret the meaning of b0 and b1 in this problem.
c. Predict the monthly rental cost for an apartment that have 1000 square feet?
d. Your friend Jim and Jennifer are considering signing a lease for an apartment in
this residential neighbourhood. They are trying to decide between two apartments,
one with 1000 square feet for a monthly rent of $1275 and the other with 1200
square feet for a monthly rent of $1425. What would you recommend to them?
Why?

2. In Question 1, an agent for a real estate company wanted to predict the monthly rent
for apartments based on the size of the apartment. The following is the residual
analysis for these data.

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UKEQ1023 Quantitative Techniques II

Figure 1
Size Residual Plot

500
400
300
200
R e siduals
100
0
-100 0 500 1000 1500 2000 2500
-200
-300
-400
-500
Size

Based on the results obtained, determine the adequacy of the fit of the model.

3. The residual Plot for a set of data collected over 15 consecutive time periods are as
follows:
Residual Plot

8
6
4
Residuals

2
0 Residual
-2
0 5 10 15 20
-4
-6
-8
Time Period

What conclusion can you reach about the pattern of the residuals over time?

4. In Question 1, an agent for a real estate company wanted to predict the monthly rent
for apartments based on the size of the apartment. Using the computer output you
obtained (Table 1) to solve that problem,
a. At the 0.05 level of significance, is there evidence of a linear relationship
between the size of the apartment and the monthly rent?
b. Set up a 95% confidence interval estimate of the population slope  1 .

5. Suppose you want to develop a model to predict assessed value based on heating area.
A sample of 15 single-family houses is selected in a city. The assessed value (in
thousands of dollars) and the heating area of the houses (in thousands of square feet)
are recorded with the following results:

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UKEQ1023 Quantitative Techniques II

Table 3
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.811996
R Square 0.659337
Adjusted R
Square 0.633132
Standard Error 2.918928
Observations 15

ANOVA
Significanc
  df SS MS F eF
Regression 1 214.3742 214.3742 25.16088 0.000236
Residual 13 110.7618 8.520139
Total 14 325.136      

Coefficient Standard Upper

  s Error t Stat P-value Lower 95% 95%
Intercept 51.91534 5.562521 9.33306 3.98E-07 39.89825 63.93243
Heating Area 16.63337 3.316021 5.016062 0.000236 9.469542 23.7972

a. State the simple linear regression model.

b. Interpret the meaning of b0 and b1 in this problem.
c. Use the regression equation developed in (a) to predict the assessed value for a
house whose heating area is 1750 square feet.
d. Determine the standard error of the estimate.
e. Determine the coefficient of determination r 2 and interpret its meaning in this
problem.
f. Determine the adequacy of the model in (a) based on the following residual plot.
Heating Area Residual Plot

6
4
2
Residuals

0
-2 0 0.5 1 1.5 2 2.5

-4
-6
Heating Area

g. At the 0.05 significance level, is there evidence of a linear relationship between

assessed value and heating area?

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UKEQ1023 Quantitative Techniques II

6. A candy bar manufacturer is interested to estimate how sales (RM’000) are

influenced by the price of their product. To do this, the company randomly chooses 6
small cities and offers the candy bar at different prices. Using candy bar sales as the
dependent variable, the company will conduct a simple linear regression on the data
below:
Table B1-1
No City Price (RM) Sales (RM’000)
1 Perlis 1.30 100
2 Taiping 1.60 90
3 Kajang 1.80 90
4 Muar 2.00 40
5 Klang 2.40 38
6 Sungai Petani 2.90 32

Table B1-3: ANOVA

Sum of Squares df Mean Square F
Regression 3855.422 1 3855.422 14.513
Residual 1062.578 4 265.645
Total 4918.000 5

Table B1-3: Coefficients

Unstandardized Coefficients Standardized Coefficients
B Std. Error Beta
(Constant) 161.386 26.161
Price -48.193 12.650 -0.885

i. What is the estimated slope parameter for the candy bar price and sales
data? Interpret your finding.

ii. What is the percentage of the total variation in candy bar sales explained by
the regression model? Interpret the result.

iii. What is the coefficient of correlation for these data? Interpret the result.

iv. Test whether a change in price will have any impact on average sales. Use
 = 0.05.
v. If the price of the candy bar is set at RM2, what is the estimated average
sale?

vi. Find the error (residual) value for the price of the candy bar is set at $2.

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UKEQ1023 Quantitative Techniques II

7. A sales manager was interested in determining if there is a relationship between

college GPA and sales performance among salespeople hired within the last year.
A sample of recently hired 16 salespeople was selected the number of units each
sold last month recorded. Relevant data appear in the table below.

The regression equation is Units Sold = - 0.48 + 7.42 GPA

(i). Is there a significant relationship between sales performance (units sold per
month) and college GPA (use α = 0.05)?

(ii). What percentage of the variability in sales performance (units sold per
month) can be accounted for by college GPA?

(iii). Predict the units sold per month for a new hire whose college GPA is 3.