Project: A researcher analyst wants to understand the relationship between the size of the monthly home mortgage or rent payment ( Monthly_Payment )for households in a particular middle-class neighborhood in Round Rock, Texas and the following set of the set of household variables: family size ( Family_Size ) , location within the neighborhood ( Location) , whether own or rent home ( Ownership) , household’s first income ( First_Income ) , household’s second income ( Second_Income ) , average monthly expenditure on utilities (Utilities) and the total indebtedness (excluding home mortgage) of the household (Debt) .

A random sample of 498 households was selected and the information is stored in the Excel file HW5_Mortgage.XLS on TRACS. In HW5, regression analysis was conducted and the following model was considered a better model among the models explored:

Model 0:

However, the residual plot shows violation to the regression assumptions.

Consider the following transformations:

1. Model 1 :
   Create a new variable = Square root of Family_Size ;
   1. Run regression again and provide an estimated regression model that describes the relationship between the dependent variable, Monthly_Payment , and the five independent variables, Square root of Family_Size , Location 1, Location 2, Location 3 and Debt. Attach relevant StatTools regression output(s) and well label the output(s). (2 points)
   2. Does this transformation fix the violation to the regression assumptions? Explain briefly. ( 1 point )
2. Model 2 :
   Create a new variable:
   LN( M onthly_Payment ) = Natural logarithm of Monthly_Payment ;
   1. Run regression again and provide an estimated regression model that describes the relationship between the dependent variable, LN( M onthly_Payment ) , and the five independent variables, Family_Size , Location 1, Location 2, Location 3 and Debt. Attach relevant StatTools regression output(s) and well label the output(s). (2 points)
   2. Does this transformation fix the violation to the regression assumptions? Explain briefly. ( 1 point )
   3. John lives with his wife and their only child in their newly purchased house in Location 1. They have about $3,500 in debt. Estimate their monthly mortgage payment. Keep seven decimal digits. (2 points)
   4. ( Bonus question: 2 points ) John and his wife will have their second child by February 2010. Estimate how many percents their monthly mortgage will change from their current mortgage payment assuming everything else will stay the same. Keep seven decimal digits.
3. Compare the three models: Model 0, Model 1 and Model 2. Which model is better? Justify your answers and support you answers with necessary statistics. (2 points)

Price: $15.38

Solution: The downloadable solution consists of 9 pages, 638 words and 4 charts.
Deliverable: Word Document