It Is Desired to Build a Regression Model to Predict $y =$

question 12

Multiple Choice

It is desired to build a regression model to predict $y =$ the sales price of a single family home, based on the $x _ { 1 } =$ size of the house and $x _ { 2 } =$ the neighborhood the home is located in. The goal is to compare the prices of homes that are located in two different neighborhoods. The following model is proposed:
$$\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 } + \beta _ { 2 } \mathrm { x } _ { 2 }$$
A regression model was fit and the following residual plot was observed.
Residual



Which of the following assumptions appears violated based on this plot?

• A) The variance of the errors is constant
• B) The errors are independent
• C) The mean of the errors is zero
• D) The errors are normally distributed

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Definitions:

Debt Securities

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Year 3

Third year in a series, sequence, or timeline, often used in financial and analytical contexts to denote the third year of operations, performance, or analysis.

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Year 1

Year 1 often refers to the first fiscal or calendar year of operation for a business or the initial year in a time series analysis.