F IL E Chad Dobson has heard about the positive outlook fo r real estate investm ent in college towns. He is interested in investing in Davis, California, w hich houses one o f the University o f California campuses. He uses zillow.com to access data on 2011 m onthly rent for 27 houses, along w ith three characteristics o f the home: num ber o f bedrooms

(Beds), num ber o f bathrooms (Baths), and square footage

(Sqft). A portion o f the data is shown in the accompanying table; the com plete data, labeled Davis Rental, are available on the te xt website.

Rent Beds Baths Sqft 2950 4 4 1453 2400 4 2 1476 744 2 1 930 SOURCE: w w w .z illo w .c o m .

a. E s tim a te a lin e a r m o d e l th a t uses re n t a n d an e x p o n e n tia l m o d e l th a t uses lo g o f re n t as th e re s p o n s e v a ria b le .

b. C o m p u te th e p re d ic te d re n t fo r a 1,5 0 0 -s q u a re -fo o t h o u s e w it h th re e b e d ro o m s a n d tw o b a th ro o m s fo r th e lin e a r a n d th e e x p o n e n tia l m o d e ls (ig n o re th e s ig n ific a n c e te sts).

c. Use R2 to s e le c t th e a p p ro p ria te m o d e l fo r p re d ic tio n .