Exhibit 17

question 97

Short Answer

Exhibit 17.8.A realtor wants to predict and compare the prices of homes in three neighboring locations.She considers the following linear models:
Model A: Price = β₀ + β₁Size + β₂Age + ε,
Model B: Price = β₀ + β₁Size + β₂Loc1 + β₃Loc2 + ε,
Model C: Price = β₀ + β₁Size + β₂Age + β₃Loc1 + β₄Loc2 + ε,
where,
Price = the price of a home (in $thousands),
Size = the square footage (in square feet),
Loc1 = a dummy variable taking on 1 for Location 1,and 0 otherwise,
Loc2 = a dummy variable taking on 1 for Location 2,and 0 otherwise.
After collecting data on 52 sales and applying regression,her findings were summarized in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Refer to Exhibit 17.8.Using Model B,what is the predicted difference between the price of homes with the same square footage located in Location 2 and Location 3?

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Definitions:

Acquisition Differential

The disparity between the acquisition cost and the fair market value of the identifiable net assets obtained.

Cumulative Preferred Shares

Type of preferred stocks where dividends accumulate if not paid in a given year, and must be paid out before common stock dividends can resume.

Surplus (Deficit)

The financial position that results when total revenues exceed (surplus) or are less than (deficit) total expenses.

Consolidated Balance Sheet

A financial statement that presents the assets, liabilities, and shareholders' equity of a parent company and its subsidiaries as one entity.