Question

An economist wants to determine the relation between one's FICO scores, x, and the interest rate of a 36-month auto loan, y. Then given data represents the interest rate a bank would offer on a 36-month auto loan for various FICO scores. Round to three decimals places and make sure you find the appropriate values for each.

Credit Score 545 595 640 675 705 750

Interest Rate 18.982 17.967 12.219 5.612 6.680 5.150

a) Find the linear regression line when r = -0.940, s_x =74.543 and s_y =6.254.

b) Find the residual for the Credit score of 640 and interpret what the result means.

Answer 1

Answer:-

W Sx s credit score :x, Interest rate : - - 094 . Sx - 14: 942, sx = 74.548, sy = 6,254, find Ž and ý = 651.667, Y = 11:102 find b = slope b = r sy (-0.940) 6:254. 0.019 74.543 4 = Y. ink (ept - T-bx = || - 102 - (- 0 0 1 9 x 6s • 66 62.584 : the linear seqseseim Line is [y: 0.019 X b) for x = 640, Ý = 62.584 -0.009 (640) = 12.024 & Residual for the credit score is, e=y-} = 12•219 -12.024 le = 0.195 It is the difference between actual and predicted value of dependent roziable. Here Residual is positive, hence they are above the seqression line, Also residual is the error that is not explained by the requestion line: 62.584 e

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