1. rv you are given the following model in which reject: -1 if loan is rejected, and 0 if not. obrat:
other obligations, of total income pubrec: 1 if filed for bankruptcy atotinc: Total monthly income
loan pre loan amount purchase price atotinc atotinc atotine a From the model above, what sign
do you expect from each partial slope coefficient in the model above? your answers (2pts) From
the estimation of model above, one can obtain the following: eject -0.2 loanprc 1.7e atotinc 4.3e
"atotinc2 0.00 54obrat 0.28 pub +0.189 rec (5.6e (0.00088) (0.0358) (0.04) (0.038) (2.7e R2
0.1087 n 1989 b. Interpret the coefficients of pubrec and of loanprc.(2pts) c How do you explain
the signs of atotinc and atotinc 02pts)
Solution
(a) The signs of coeffiecent of each slope indicate the direction of relationship.
(b) If Pubrec that is bankruptcy is increased by 1 unit, the chance of rejection is increased by
0.28 unit.
If loanprc that is amount of loan is increased by 1 unit, the chance of rejection is increased by
0.819 unit.
(c) Atotinc is monthly income. So With the possibility of increase in income, there will be more
possiblity to repay the loan and hence less possibility of rejection. And atotinc2 = atotinc*atotinc
and we have negative sign of atotinc which will become positive after squaring.Coeffecient of
SlopeSignJustificationloanprc(+) positiveWith the increase in amount of loan there is more
chance of rejection of loanatotinc(-) negativeWith the possibility of increase in income, there
will be more possiblity to repay the loan and hence less possibility of rejectionatotinc2(+)
positiveAs atotinc2 = atotinc*atotinc and we have negative sign of atotinc which will become
positive after squaringobrat(+) PositiveMore the other obligations less the possibility of
repayment of loan and hence increased possibility of rejectionpubrec(+) Positiveincreased
possibility of bankruptcy increases the chance of getting a rejection.