Assignment 4-2

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Southern New Hampshire University *

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510

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Jan 9, 2024

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Jasmine Allen Southern New Hampshire University QSO 510 Dr. Thomas Knopp Assignment 4-2 February 26 th , 2023

A finance manager employed by an automobile dealership believes that the number of cars sold in his local market can be predicted by the interest rate charged for a loan. Interest Rate (%) Number of Cars Sold (100s) 3 10 5 7 6 5 8 2 The finance manager performed a regression analysis of the number of cars sold and interest rates using the sample of data above. Shown below is a portion of the regression output. Regression Statistics Multiple R 0.998868 R 2 0.997738 Coefficient Intercept 14.88462 Interest Rate -1.61538 1. Are there factors other than interest rate charged for a loan that the finance manager should consider in predicting future car sales? The closer an R square value is to 1, the more accurate the model. In this particular scenario, the R square value is 0.998, which is extremely close to 1. Knowing this information, the finance manager should not need to consider any other factors besides the interest rate charged for a loan in predicting future car sales. 2. Is interest rate charged for a loan the most important factor to be considered in predicting future car sales? Explain your reasoning. The dealership's vice-president of marketing has requested a sales forecast at the prevailing interest rate of 7%. The interest rate charged for a loan is indeed the most important factor in predicting future car sales. This is due to the R square value being so close to 1. 2

With an interest rate of 7%, the number of cars sold would be 3.57 (100s), according to the following calculation: y=14.88-1.6153(7) 3. As finance manager, what reasons would you convey to the vice-president in recommending this forecasting model? The biggest reason behind recommending this forecasting model is the R square value. Because it is over 99%, it is indicative of an accurate model for the regression. 4. Is the prediction of car sales at 7% a reflection of the current downturn in the economy? How might this impact the dealership's business? The prediction of car sales at 7% is a reflection of the current downturn in the economy. It’s easy to see from the data given that higher interest rates result in lower car sales. If the business decides to raise interest rates to 7% to keep up with inflation, they can expect a decrease in car sales. 3

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