Data were collected from a random sample of 250250 home sales from a community i

Question

Data were collected from a random sample of

250250

home sales from a community in 2003. Let Price denote the selling price (in $1,000), BDR denote the number of bedrooms, Bath denote the number of bathrooms, Hsize denote the size of the house (in square feet), Lsize denote the lot size (in square feet), Age denote the age of the house (in years), and Poor denote a binary variable that is equal to 1 if the condition of the house is reported as "poor."

An estimated regression yields

ModifyingAbove Price with caret equals 121.6 plus 0.495 BDR plus 23.9 Bath plus 0.159 Hsize plus 0.004 LsizePrice=121.6+0.495BDR+23.9Bath+0.159Hsize+0.004Lsize

plus 0.092 Age minus 49.8 Poor comma Upper R overbar squared equals 0.73 comma SER equals 42.3+0.092Age49.8Poor, R2=0.73, SER=42.3.

Suppose that a homeowner converts part of an existing family room in her house into a new bathroom. What is the expected increase in the value of the house?

(Round your response to the nearest dollar.)

Explanation / Answer

Data were collected from a random sample of 250250 home sales from a community in 2003. Let Price denote the selling price (in $1,000), BDR denote the number of bedrooms, Bath denote the number of bathrooms, Hsize denote the size of the house (in square feet), Lsize denote the lot size (in square feet), Age denote the age of the house (in years), and Poor denote a binary variable that is equal to 1 if the condition of the house is reported as "poor."

An estimated regression yields

Price=121.6+0.495BDR+23.9Bath+0.159Hsize+0.004Lsize+ 0.092 Age - 49.8 Poor ,r, R2=0.73, SER=42.3.

Suppose that a homeowner converts part of an existing family room in her house into a new bathroom. What is the expected increase in the value of the house

Sol: In this case only the number of bathrooms increased by the rest ofthe regression stay the same .previous price and newprice differ only in BATH
        23.9(BATH+1)-23.9BATH
        =23.9
in thousands of dollar the expected increase in the value of the house is $23,900

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