A bank developed a model for predicting the average checking

A bank developed a model for predicting the average checking and savings account

balance as balance=17,732+367×age+1,300×years

education+0.116×household wealth .

a. Explain how to interpret the numbers in this model.

b. Suppose that a customer is 32 years old, is a college graduate (so that years

education = 16), and has a household wealth of $150,000. What is the predicted

bank balance?

Solution

(a)

First number : -17,732 is the intercept of the model. It says if all the variables are equal to zero then balance will be -17732. In this case intercept is meaning less becuase a person with zero age cannot have account.

The number 367 says that if all other things remain constant then for each year increase in age, balance increase by $367.

The number 1300 says that if all other things remain constant then for each year increase in education, balance increase by $1300.

The number 0.116 says that if all other things remain constant then for each uit increase in household wealth , balance increase by $0.116.

(b)

Here we have age =32, years education = 16 and household wealth = $150000 so predicted bank balance will be

balance=17,732+367×32+1,300×16+0.116×150000 = $32,212