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Exhibit 17.4.A researcher wants to examine how the remaining balance on $100,000 loans taken 10-20 years ago depends on whether the loan was a prime or sub-prime loan.He collected a sample of 25 prime loans and 25 sub-prime loans and records the data in the following variables: Balance = the remaining amount of loan to be paid off (in dollars) ,
Time = the time elapsed from taking the loan,
Prime = a dummy variable assuming 1 for prime loans,and 0 for sub-prime loans.
The regression results obtained for the models:
Model A: Balance = β0 + β1Prime + ε
Model B: Balance = β0 + β1Time + β2Prime + β3Time × Prime + ε
Model C: Balance = β0 + β1Prime + β2Time × Prime + ε,
Are summarized below. Note.The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Refer to Exhibit 17.4.Using Model C,what is the predicted balance on a $100,000 prime loan taken 15 years ago?
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