A real estate agency in Germany is interested in understanding the impact of various factors on property rents. Their basic hypothesis is that having a balcony in the property increases the rent. They commission the study to a researcher. A dataset of over 20,000 rent offers across Germany has been collected from the website Immoscout24 in 2018 and 2019. After removing outliers from the sample, the following models have been estimated: (1) TotalRenti = 0 + 1Balconyi + i (2) TotalRenti = 0 + 1Balconyi + 2LivingSpacei + i

Where: TotalRent is the total monthly rent (inclusive of utility bills and service charge) in Euros. Balcony is a dummy variable, which is equal to 1 if the apartment has a balcony. LivingSpace is the total internal area of the flat in square meters. The following are the results of the estimated OLS regression for the two models: Variable Model 1 Model 2 Intercept S.E. p-value 631.029 (1.79) 0.00 -159.76 (2.00) 0.00 Balcony S.E. p-value 294.71 (2.27) 0.00 91.82 (1.61) 0.00 LivingSpace S.E. p-value 12.59 (0.03) 0.00 Adj R2 0.07 0.56 F-test p-value 0.00 0.00

Numbers in parenthesis below the coefficient values represent the coefficient's standard errors. The number in italic is the corresponding p-value of the T-test for significance. Additional diagnostic results are presented in the appendix. A report presenting and interpreting these results. Make sure your report includes: 1) A full explanation of the coefficient results including their statistical and economic significance and goodness-of-fit. 2) A critical interpretation of these results, including whether they conform to your expectations and the hypothesis presented above. You should also compare the differences between the two models and suggest which of the two is preferable. 3) A discussion of possible issues that these two estimated models might suffer from, and how you would address these. You should look at the appendix for further information and discuss the limitation of your analysis given the information you have been given. 4) A concluding statement: is the key hypothesis of the study confirmed?