Individual Assignment
Individual Assignment
Individual Assignment
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Part III: Workout
1) Given
n – number of observations = 30.
Required
A) Find the least squares regression equation of Y on X1 and X2 and interpret the resulting
slope coefficients of the regression model.
First, let’s find the coeffient of the explanatory variables and the slope of the model.
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So, our regression model becomes:
Ῠ = 47.6794 + 0.4075X1 – 0.6438X2
Where;
Ῠ - Score of the student
X1 – Average hours spent to study the course per week
X2 – Level of anxiety as percentage of hours allotted for the course’s final exam
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Interpretation of the Model
If a student does not use average hours to study the course per week and ignore level of
anxiety as percentage of hours allotted to the course, the student would score 47.6794.
If the average hours spent to study the course per week increase by 1hr, the score of the
student would increase by 0.4075 assuming level of anxiety per percentage of hours
allotted for the final exam of the course is unchanged.
If level of anxiety as percentage of hours allotted for the course’s final exam increases by
1%, the score of the student would decrease by 0.6438 assuming average hours spent to
study the course is unchanged.
The value of coeffient of determination (86.98%) shows that variation of score of the
student under consideration is explained by variation in average hours spent to study the
course per week and level of anxiety as percentage of hours allotted to the course’s final
exam and the rest 13.02% is remained unexplained by the regression model which could
be the result of other factors.
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C) Undertake an overall significance test at 5% level of significance (show the necessary
steps to conduct the test).
Since Fcal > Fcrt, we reject the null hypothesis that is Ho: B 1=B2=0 and average hours spent to
study the course per week and level of anxiety as percentage of hours allotted for the course’s
final exam become statistically significant to determine score of the student.
2) Given
If the average annual lending interest rate increased by 1%, the annual net profit of the
bank would decrease by 0.7 million birr assuming the number of branches of the bank is
unchanged.
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If the number of branches of the bank is increased by 1 branch, the annual net profit of
the bank would increase by 0.2 million birr assuming the average annual lending interest
rate is unchanged.
B) Check whether interest rate and number of branches are statistically significant in
explaining banks net annual profit at 5% level of significance.
Since tcal = 6.140 > ttab = 2.052, we reject the null hypothesis at 5% level of significance.
Therefore, the annual lending interest rate is significant determinant of the annual net profit of
the bank.
Since tcal = 5.263 > ttab = 2.052, we reject the null hypothesis at 5% level of significance. The
number of branches the bank has is significant determinant of the annual net profit of the bank.
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C) Check the adequacy of the regression model at 5% level of significance.
Since Fcal = 84.4313 > Fcrt = 3.354, we reject the null hypothesis and confirm that the average
lending interest rate and the number of branches the bank has are significant determinant of the
bank’s annual net profit and R2 = 0.8612 shows the degree the two explanatory variables explain
the dependent variable. So, we can deduce the model is adequate.
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Given
Since X2cal = 25.836 > X2tab0.05(5) = 11.07, we reject the null hypothesis of the homoskedacity
assumption at 5% level of significance.
E) You further interested to check whether there is multicollinearity problem in the above result
or not using VIF. Do you see multicollinearity problem the result below?
From the above table it is shown that, value of 1/VIF is close to 1 and value of VIF < 10. Therefore,
we can conclude the average annual lending interest rate and the number of branches the bank has are
not correlated.
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