Question
The accompanying data file contains 35 observations for an ice cream truck drivers daily income (Income in $), number of hours on the road (Hours),
The accompanying data file contains 35 observations for an ice cream truck drivers daily income (Income in $), number of hours on the road (Hours), whether it was a particularly hot day (Hot = 1 if the high temperature was above 85F, 0 otherwise), and whether it was a Holiday (Holiday = 1, 0 otherwise). Consider two models where Model 1 predicts Income on the basis of Hours, Hot, and Holiday and Model 2 also includes the interaction between Hot and Holiday.
a-1. Use the holdout method to compare the predictability of the models using the first 24 observations for training and the remaining 11 observations for validation. Report the estimates of Models 1 and 2 derived from the training set. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)
| predictor variable | model 1 | model 2 |
| constant | ||
| hours | ||
| hot | ||
| holiday | ||
| hot * holiday |
a-2. Calculate the RMSE of the two models in the validation set. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
| Model 1 | model 2 | |
| RMSE |
a-3. Which model is better for making predictions?
| Model .... | because its RMSE is | ..... |
| Income | Hours | Hot | Holiday |
| 196 | 5 | 1 | 0 |
| 282 | 8 | 0 | 0 |
| 318 | 6 | 1 | 0 |
| 232 | 5 | 1 | 0 |
| 276 | 8 | 0 | 0 |
| 312 | 8 | 0 | 1 |
| 193 | 5 | 0 | 1 |
| 110 | 4 | 0 | 0 |
| 321 | 8 | 1 | 0 |
| 283 | 8 | 0 | 0 |
| 325 | 8 | 1 | 0 |
| 247 | 7 | 0 | 1 |
| 398 | 8 | 1 | 1 |
| 448 | 8 | 1 | 1 |
| 214 | 4 | 0 | 0 |
| 235 | 8 | 0 | 0 |
| 238 | 8 | 0 | 0 |
| 148 | 3 | 1 | 0 |
| 313 | 8 | 0 | 1 |
| 449 | 8 | 1 | 1 |
| 332 | 8 | 1 | 1 |
| 214 | 8 | 0 | 0 |
| 363 | 7 | 1 | 0 |
| 393 | 7 | 1 | 1 |
| 254 | 8 | 0 | 0 |
| 228 | 8 | 0 | 0 |
| 355 | 6 | 1 | 1 |
| 248 | 7 | 0 | 1 |
| 291 | 8 | 1 | 0 |
| 255 | 5 | 1 | 0 |
| 239 | 6 | 0 | 0 |
| 214 | 6 | 0 | 0 |
| 222 | 7 | 0 | 0 |
| 170 | 5 | 0 | 1 |
| 374 | 6 | 1 | 1 |
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Practical Financial Management
Authors: William R. Lasher
7th edition
128560721X, 9781133593669, 1133593682, 9781285607214, 978-1133593683
