PROBLEM SET 3 (WITH DUMMY VARIABLE)

The data contains information about the starting salary of a sample of 50 undergraduate students at a
Business school. The data consists of the starting salary (SALARY) in dollars, the field of study of the
student (MAJOR), the field of study is either 'Finance' or 'International Business'. Finally, the variable
UGPA is undergraduate Grade Point Average of the student.

Estimate a regression model linking starting salary to the field of study and UGPA as follows,
SALARY = β0 + β1IB + β2UGPA
In the above regression, IB is a dummy variable which takes a value =1 when the MAJOR is IB,
otherwise it takes a value 0.
1. Report the estimated values of β0, β1 and β2.  Round the answers to two decimal numbers. 
Regression Analysis

Regression Statistics
Multiple R 0.8048
R Square 0.6477
Adjusted R Square 0.6327
Standard Error 3462.3494
Observations 50

ANOVA
df SS MS F Significance F
Regression 2 1035936171.1635 517968085.5817 43.2077 0.0000
Residual 47 563429590.6165 11987863.6301
Total 49 1599365761.7800

Coefficients Standard Error t Stat P-value Lower 99% Upper 99% Lower 99% Upper 99%
Intercept 47298.1589 4152.0400 11.3915 0.0000 36151.7766 58444.5412 36151.7766 58444.5412
MAJOR -5144.7442 1319.3274 -3.8995 0.0003 -8686.5518 -1602.9365 -8686.5518 -1602.9365
UGPA 4584.4543 1255.7940 3.6506 0.0007 1213.2056 7955.7031 1213.2056 7955.7031

 MAJOR = -5,144.74
 UGPA = 4,584.45
2. Interpret each estimated value of no. 1.

 An estimate of Php 5,144.74 is expected to decline in the starting salary of undergraduate

students in the business school corresponding to a________ in major???, assuming the
UGPA is held constant.
 An estimate of Php 4,584.45 is expected to increase in the starting salary of undergraduate
students in the business school corresponding to an increase of 1 unit of UGPA, assuming the
major or the field of study of the student is held constant.
3. What is the estimated salary of a Finance major student with undergraduate grade point
average of 3.9?
The estimated salary of a Finance major student with an undergraduate grade point average of 3.9
is Php 65,177.53.
 Confidence Interval Estimate and Prediction Interval

Data
Confidence Level 99%
1
MAJOR given value 0
UGPA given value 3.9

X'X 50 25 145.4
25 25 63.9
145.4 63.9 436.62

Inverse of X'X 1.438074 -0.34192 -0.42886

-0.34192 0.145199 0.092612
-0.42886 0.092612 0.131551

X'G times Inverse of X'X -0.23447 0.019272 0.084193

[X'G times Inverse of X'X] times XG 0.093883

t Statistic 2.684556
Predicted Y (YHat) 65177.53

4. Construct a 99% confidence interval for the estimated salary in no. 3?

Confidence Interval Estimate and Prediction Interval

Data
Confidence Level 99%
1
MAJOR given value 0
UGPA given value 3.9

X'X 50 25 145.4
25 25 63.9
145.4 63.9 436.62

Inverse of X'X 1.438074 -0.34192 -0.42886

-0.34192 0.145199 0.092612
-0.42886 0.092612 0.131551

X'G times Inverse of X'X -0.23447 0.019272 0.084193

[X'G times Inverse of X'X] times XG 0.093883

t Statistic 2.684556
Predicted Y (YHat) 65177.53

For Average Predicted Y (YHat)

Interval Half Width 2847.985
Confidence Interval Lower Limit 62329.55
Confidence Interval Upper Limit 68025.52

5. Using the estimate regression equation, what should be the undergraduate grade point average
of an IB student who has a salary of $60,500?
 Coefficients Standard Error t Stat P-value Lower 99% Upper 99% Lower 99% Upper 99%
Intercept 47298.1589 4152.0400 11.3915 0.0000 36151.7766 58444.5412 36151.7766 58444.5412
MAJOR -5144.7442 1319.3274 -3.8995 0.0003 -8686.5518 -1602.9365 -8686.5518 -1602.9365
UGPA 4584.4543 1255.7940 3.6506 0.0007 1213.2056 7955.7031 1213.2056 7955.7031

Salary = (47298.16) + (-5144.74)*Major + (4584.45)*UGPA

60,500 = (47298.16) + (-5144.74)*1 + (4584.45)*UGPA
let x be the UGPA;
UGPA = 4.00