In 2011, home prices and mortgage rates fell so far that in a number of cities the monthly cost of owning a home was less expensive than renting. The following data show the average asking rent for 10 markets and the monthly mortgage on the median priced home (including taxes and insurance) for 10 cites where the average monthly mortgage payment was less than the average asking rent (The Wall Street Journal, November 2627, 2011).

Click on the datafile logo to reference the data.

	City	Rent ($)		Mortgage ($)
	Atlanta	840		539
	Chicago	1,062		1,002
	Detroit	823		626
	Jacksonville	779		711
	Las Vegas	796		655
	Miami	1,071		977
	Minneapolis	953		776
	Orlando	851		695
	Phoenix	762		651
	St. Louis	723		654

(a)

Develop a scatter chart for these data, treating the average asking rent as the independent variable. Choose the correct scatter chart below.

(i)
(ii)
(iii)
(iv)

- Select your answer -Chart (i)Chart (ii)Chart (iii)Chart (iv)Item 1

Does a simple linear regression model appear to be appropriate?

The scatter chart suggests that rent is - Select your answer -positivelynotnegativelyItem 2 related to mortgage. It is - Select your answer -clearnot clearItem 3 that the relationship is linear, and so a simple linear regression model - Select your answer -willmay notItem 4 be appropriate.

(b)

Use a simple linear regression model to develop an estimated regression equation to predict the monthly mortgage on the median priced home given the average asking rent. If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300)

= + x

Construct a plot of the residuals against the independent variable rent. Based on this residual plot, does a simple linear regression model appear to be appropriate?

- Select your answer -yesnoItem 7

Explain.

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(c)

Using a quadratic regression model, develop an estimated regression equation to predict the monthly mortgage on the median-priced home, given the average asking rent. If required, round your answers to three decimal places.

Let x represent Rent ($).

Let x² represent Rent Squared.

= - x + x²

(d)

Do you prefer the estimated regression equation developed in part (a) or part (c)?

- Select your answer -part (a)part (c)Item 12

Create a plot of the linear and quadratic regression lines overlaid on the scatter chart of the monthly mortgage on the median-priced home and the average asking rent to help you assess the two regression equations. Choose the correct scatter chart below.

(i)
(ii)
(iii)
(iv)
	- Select your answer -Chart (i)Chart (ii)Chart (iii)Chart (iv)Item 13

Explain your conclusions.

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