TEAM 9

Aim of study: the behavior of Sale price of houses, depending on the Number of days beween
announcing the house sale and closing the deal, on one hand and on Living area, on the other
hand.
Data recorded for 25 houses, sold by a real estate agency:

Nr Sale price Number of days beween House living

Ctr. (thousand dollars) announcing the house sale and area (m2)
closing the deal
1 274 85 244
2 265 61 151
3 254 1 247
4 229 13 158
5 250 16 209
6 335 91 298
7 321 54 261
8 300 13 306
9 325 96 282
10 210 18 210
11 416 62 411
12 342 18 394
13 347 133 365
14 284 103 250
15 290 104 259
16 294 46 366
17 235 74 233
18 250 10 185
19 290 13 269
20 247 34 289
21 232 15 290
22 278 66 240
23 222 73 162
24 265 55 218
25 300 85 273
Process the data in Excel (Data/Data Analysis/Regression) and answer the following
questions:

a. Identify the variables, the linear regression equation and interpret the partial regression
coefficients.
b. Is there enough evidence to conclude that the regression model is valid, at 95%
confidence level? (critical value: 3,44).
c. Test the significance of the model parameters (critical value: 2,074).
d. Find and interpret the confidence intervals for the model parameters.
e. What percent in the total variability of selling price is determined by the influence of
the two explanatory variables?
f. Measure the strength of the relationship between the three variables, using an
appropriate statistical indicator. Test its significance.
g. Analyze the direction and the strength of the relationship between Sale price and
House living area. Use correlation coefficient (“CORREL” function in Excel).
h. Predict the selling price of a house with 300 m2, which was sold after 50 days since the
sale announcement.

Solution

a.Identify the variables, the linear regression equation and interpret the partial regression
coefficients.

The independent variable (x1) = Number of days beween announcing the house sale and
closing the deal

The independent variable (x2) = House living area (m2)

The dependent variable (y) = Sale price (thousand dollars)

Regression Statistics
Multiple R 0,825226
R Square 0,680997
Adjusted R 0,651997
Square
Standard 27,95634
Error
Observatio 25
ns
 ANOVA
  df SS MS F Significan
ce F
Regression 2 36705,7 18352,8 23,4824 3,48E-06
5 8 6
Residual 22 17194,2 781,556
5 8
Total 24 53900      

  Coefficien Standar t Stat P-value Lower Upper Lower Upper

ts d Error 95% 95% 95,0% 95,0%
Intercept 131,1964 22,8891 5,73183 9,14E- 83,72734 178,665 83,7273 178,665
06 5 4 5
X Variable 1 0,353989 0,15592 2,27028 0,03333 0,030624 0,67735 0,03062 0,67735
3 4 3 4 3
X Variable 2 0,50245 0,08359 6,01088 4,75E- 0,329095 0,67580 0,32909 0,67580
7 06 5 5 5

Linear Regression Equation

 Population;
Y i = β 0 + β 1∗X 1i + β 2∗X 2i + ε i

 Sample:
y i= b 0 + b 1∗x 1i + b 2∗x 2i + e i

y i= 131,19 + 0,353∗x 1i + 0,502∗x2 i + e i

b 1=0,353 > 0 => positive correlation between Sale prices and Number of days beween
announcing the house sale and closing the deal

b 2 = 0,502 > 0 => positive correlation between Sale prices and House living area (m2)

 If the number of days between announcing the house sale and closing deal increases
by 1 day, then the Sale prices increase by 0,353 thousand dollars.

 If the House living area increases by 1m2 then the Sale prices increase by 0,502
thousand dollars.
 b. Is there enough evidence to conclude that the regression model is valid, at 95%
confidence level? (critical value: 3,44).

H 0 : MSR=MSE ( the model is not valid)

. H 1: MSR > MSE ( the model is valid)

MSR 18352,88
 F comp = = = 23,48246
MSE 781,5568

 F crit = 3,44

F comp > F crit => F comp ∈ Rr => reject H 0, accept . H 1=> the model is valid ( significant )

Significance F = 3,48E-06 < 0,05 (∝) => accept H 1=> the model is valid

c. Test the significance of the model parameters (critical value: 2,074).

Hypothesis:

H0 : β j = 0
H 1 : β j ≠ 0 ; j= 1 , n

b^ j−βj b^ j
t comp = =
sb^
j
s b^ j

 Testing the β 0 parameter:

H 0 : β0 = 0

H 1 : β0 ≠ 0

b^ 0− β 0 b^ 0 131,1964
t comp = = = = 5,73183
s ^b
0
s b^ 22,8891
0

t ∝/2 , n−k−1 = t 0,025; 22 = 2,074

 t comp > t ∝/2 , n−k−1 => reject H 0 , the parameter β 0 is
.
1. Testarea parametrului β 1 :

H 0 : β1 = 0

H 1 : β1 ≠ 0

b^ 1−0
t ^b = = 2,93
1

1
s b^
t critic = t ∝ ;n−k = t 0,025; 27 = 2,37
2

Deoarece t ^b > t critic => se respinge H 0si se accepta H 1 , ceea ce inseamna ca parametrul β 1
1

difera semnificativ de 0 .

2. Testarea parametrului β 2 :

H0 : β2 = 0

H 1 : β2 ≠ 0

b^ 2−0
t ^b = = 3,24
2
2
s b^
t critic = t ∝ ;n−k = t 0,025; 27 = 2,37
2
Deoarece t ^b > t critic => se accepta H 0 si se respinge H 1 , ceea ce inseamna ca parametrul β 2
2

difera semnificativ de 0 .