It Is Desired to Build a Regression Model to Predict $\mathrm { y } =$

question 46

Multiple Choice

It is desired to build a regression model to predict $\mathrm { y } =$ the sales price of a single family home, based on the $\mathrm { x } _ { 1 } =$ size of the house and $\mathrm { x } _ { 2 } =$ 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:
$$E ( y ) = \beta _ { 0 } + \beta _ { 1 } x _ { 1 } + \beta _ { 2 } x _ { 2 }$$
A regression model was fit and the following residual plot was observed.
Which of the following assumptions appears violated based on this plot?

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

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Definitions:

Accounts Receivable

Accounts receivable is the amount of money owed to a company for goods or services it has sold on credit.

Earnings Per Share

A financial metric indicating the portion of a company's profit allocated to each outstanding share of common stock, calculated as net income divided by the number of shares.

Net Income

A financial metric indicating the amount of revenue that remains as profit for a period after all expenses and taxes have been paid.

Common Stock

A form of investment indicating a stake in a corporation, which bestows upon its owners the right to vote and receive a portion of the company's earnings through dividends.