Problem Set 8 – Regression Analysis

Problem 1
An admissions officer wants to examine the cumulative GPA of new students, and has data
on 224 first-year students at the end of their first two semesters. The admissions officer
estimates the following model: GPA = β0 + β1HSM + β2HSS + β3HSE + ε, where HSM,
HSS and MSE are their average high school math, science and English grades (as
proportions). The regression results are shown in the accompanying table.

df SS MS F
Regression 3 27.71 9.24 18.61
Residual 220 107.75 0.48977
Total 223 135.46
Coefficients Standard Error t-stat p-value
Intercept 3.01 0.2942 2.01 0.0462
HSM 0.17 0.0354 4.75 0.0001
HSS 0.03 0.0376 0.091 0.3619
HSE 0.05 0.0387 1.17 0.2451

a. Predict the GPA when the average math grade is 90%, the average science grade is 85%
and the average English grade is 85%.

b. If a student had a GPA of 3.0. What is the residual and does the sample regression
equation under- or overpredict the GPA?

c. Calculate the standard error of the estimate.

d. Interpret the coefficient of determination.

Problem 2
138) A manager at a ski resort in Vermont wanted to determine the effect that weather had
on its sales of lift tickets. The manager of the resort collected data over the last 20 years on
the number of lift tickets sold during Christmas week (y), the total snowfalls in inches (x1),
and the average temperature in degrees Fahrenheit (x2). The following model is estimated:
Sales = β0 + β1Snowfall + β2Temperature + ε. A portion of the regression results is shown
in the accompanying table.
 df SS MS F
Regression 2 32,516 16,250 6.49
Residual 17 42,539 2,502
Total 19 75,055
Coefficients Standard Error t-stat p-value
Intercept 8,308 903.7 9.19 0.0001
Snowfall 74.59 31.57 2.36 0.0305
Temperature −8.75 19.70 −0.44 0.6625

a. Predict the number of lift tickets sold during Christmas week, the total snowfall was 25
inches and the average temperature was 35 degrees Fahrenheit.

b. Interpret the slope coefficient for Snowfall.

c. Calculate the standard deviation of the difference between the actual number of tickets
sold and the estimate of the number of tickets sold.

d. Calculate and interpret the coefficient of determination.

e. Calculate the adjusted R2.

Adjusted R2 = 1 - (1 - R2) .

Problem 3
An investment analyst wants to examine the relationship between a mutual fund's return, its
turnover rate, and its expense ratio. She randomly selects 10 mutual funds and estimates:
Return = β0 + β1Turnover + β2Expense + ε, where Return is the average five-year return (in
%), Turnover is the annual holdings turnover (in %), Expense is the annual expense ratio (in
%), and ε is the random error component. A portion of the regression results is shown in the
accompanying table.

df SS MS F Significance F
Regression 2 93.33 46.67 4.90 0.047
Residual 7 66.69 9.53
Total 9 160.02
Coefficients Standard Error t-stat p-value
Intercept 30.60 4.30 7.12 0.000
Turnover 0.13 0.06 2.23 0.061
Expense 0.90 4.08 0.22 0.831
a. At the 10% significance level, are the explanatory variables jointly significant in
explaining Return? Explain.

b. At the 10% significance level, is each explanatory variable individually significant in

explaining Return? Explain.

Problem 4
An analyst examines the effect that various variables have on crop yield. He estimates y =
β0 + β1x1 + β2x2 + β3x3 + ε. where y is the average yield in bushels per acre, x1 is the
amount of summer rainfall, x2 is the average daily use in machine hours of tractors on the
farm, and x3 is the amount of fertilizer used per acre. The results of the regression are as
follows:

df SS MS F Significance F
Regression 3 12,000 4,000 10 0.0095
Residual 6 2,400 400
Total 9 14,400
Coefficients Standard Error t-stat p-value
Intercept 1.6 1.0 1.6 0.1232
x1 7.5 2.5 3.0 0.0064
x2 6.0 4.0 1.5 0.1472
x3 1.0 0.5 2.0 0.0574

a. At the 10% significance level, are the explanatory variables jointly significant in
explaining crop yield? Explain.

b. At the 10% significance level, is fertilizer significant in explaining crop yield? Explain.

c. At the 10% significance level, can you conclude that the slope coefficient attached to
rainfall differs from 9? Explain.