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

question 63

Multiple Choice

It is desired to build a regression model to predict $y =$ the sales price of a single family home, based on the neighborhood the home is located in. The goal is to compare the prices of homes that are located in four different neighborhoods. Which regression model should be built?

• A) \(\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 }\), where \(\mathrm { x } _ { 1 }\) is a qualitative variable that describes the four neighborhoods.
• B) \(\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 } + \beta _ { 2 } \mathrm { x } _ { 2 } + \beta _ { 3 } \mathrm { x } _ { 3 } + \beta _ { 4 } \mathrm { x } _ { 4 }\), where \(\mathrm { x } _ { 1 } - \mathrm { x } _ { 4 }\) are qualitative variables that describe the four neighborhoods.
• C) \(\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 } + \beta _ { 2 } \mathrm { x } _ { 2 } + \beta _ { 3 } \mathrm { x } _ { 3 }\), where \(\mathrm { x } _ { 1 } - \mathrm { x } _ { 3 }\) are qualitative variables that describe the four neighborhoods.
• D) \(\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 } + \beta _ { 2 } \mathrm { x } _ { 1 } ^ { 2 }\), where \(\mathrm { x } _ { 1 }\) is a qualitative variable that describes the four neighborhoods.

---

Definitions:

Volatile

Referring to a substance that changes state or quality easily, or, in financial contexts, to markets or prices that change rapidly and unpredictably.

Venture Capital Fund

A pool of money managed by professionals that is used to invest in high-growth potential startups and early-stage companies.

High-Risk

Situations or investments where there is a high probability of loss but also a potential for more significant than average gains.

Household Savings

The portion of disposable income that is not used for consumption, but is set aside for future spending, emergencies, or investments.