Question

A real estate analyst has developed a multiple regression line, y = 60 + 0.068 x1 – 2.5 x2, to predict y = the market price of a home (in $1,000s), using two independent variables, x1 = the total number of square feet of living space, and x2 = the age of the house in years. With this regression model, the predicted price of a 10-year old home with 2,500 square feet of living area is __________.

Answer 1

Answer:

$205,000

Explanation:

With a pricing formula as stated below

y = 60 + 0.068x1 - 2.5x2

where x1 = total number of square feet of the living space

and x2 = the age of the house (years).

When the age of the home (x2) = 10 years, and the home has 2,500 square feet of living area (x1), the price of the home is

y = 60 + (0.068 * 2,500) - (2.5 * 10)

= 60 + 170 - 25

= 205

Since y is in ($1,000s) as given, the price of the home is $205,000.