You are given the following model: appr = b 0 + b1 loanprc + b 2atotinc +b 3 atotinc.^2sq. +…

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You are given the following model:

appr = b 0 + b1 loanprc + b 2atotinc +b 3 atotinc.^2sq. + b4obrat + b5pubrec + u,

4 5 2 b 0 b1 b 2 b 3 b b ,

in which:

– approve: =1 if loan is approved, and 0 if not.

– obrat: other obligations, % of total income

– pubrec: = 1 if filed for bankruptcy

– atotinc: Total monthly income

– loanprc: loan amount /purchase price

– atotinc.^2sq. = atotinc* atotinc

a. What sign would you expect from each partial slope coefficient in the model above? Justify your answers.

From the estimation of model above, one can obtain the following:

appr = 1.2-0.189loanprc +1.7e^-06atotinc-4.3e^-11atotinc^2-0.0054obrat-0.28 pubrec

(0.04) (0.038) (2.7e^ -06 ) (5.6e^ -11 ) (0.00088) (0.0358)

R^2= 0.1087 n =1989

b. Interpret the coefficients of pubrec, and of loanprc.

c. How do you explain the signs of atotinc and atotinc^2 ?

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