Suppose a Rental Car Company Uses Simple Linear Regression to Develop

question 108

Multiple Choice

Suppose a rental car company uses simple linear regression to develop an equation that predicts the repair costs for each of its vehicles based on the mileage of the car (total miles driven) .The company uses the following data on repair costs and miles driven for five of its cars: The least squares line predicts that if the mileage of a car increases by 10,000 miles, its annual repair costs will increase by an estimated:

• A)$13.85
• B)$64.64
• C)$138.52
• D)$144.96

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Definitions:

Simple Interest

Interest calculated solely on the principal amount of a loan or deposit, over a particular time period.

Effective Annual Rates

The real return on an investment, taking into account the effect of compounding interest over multiple periods within a year.

Equal Installments

Periodic payments of the same amount over the term of a loan or investment.

Borrowed

Borrowed refers to funds that have been taken on loan from external sources, which are expected to be paid back with interest over time.