Concept explainers
Problems 7–12 use the results from Problems 25–30 in Section 4.1 and Problems 17–22 in Section 4.2.
8. Credit Scores Use the results from Problem 26 in Section 4.1 and Problem 18 in Section 4.2 to:
- a. Determine the coefficient of determination, R2.
- b. Interpret the coefficient of determination.
Reference 1
18. Credit Scores (Refer to Problem 26, Section 4.1.) An economist wants to determine the relation between one’s FICO score, x, and the interest rate of a 36-month auto loan, y. The given data represent the interest rate (in percent) a bank would offer on a 36-month auto loan for various FICO scores.
Credit Score, x | Interest Rate (percent), y |
545 | 18.982 |
595 | 17.967 |
640 | 12.218 |
675 | 8.612 |
705 | 6.680 |
750 | 5.150 |
Source: www.myfico.com |
- a. Find the least-squares regression line treating the FICO score, x, as the explanatory variable and the interest rate, y, as the response variable.
- b. Interpret the slope and y-intercept, if appropriate.
Note: Credit scores have a
- c. Predict the interest rate a person would pay if her FICO score were the
median score of 723. - d. Suppose Bob has a FICO score of 680 and he is offered an interest rate of 8.3%. Is this a good offer? Why?
Reference 2
26. Credit Scores Your Fair Isaacs Corporation (FICO) credit score is used to determine your creditworthiness. It is used to help determine whether you qualify for a mortgage or credit and is even used to determine insurance rates. FICO scores have a range of 300 to 850, with a higher score indicating a better credit history. The given data represent the interest rate (in percent) a bank would offer on a 36-month auto loan for various FICO scores.
Credit Score | Interest Rate (percent) |
545 | 18.982 |
595 | 17.967 |
640 | 12.218 |
675 | 8.612 |
705 | 6.680 |
750 | 5.150 |
Source: www.myfico.com |
- a. Which variable do you believe is likely the explanatory variable and which is the response variable?
- b. Draw a
scatter diagram of the data. - c. Determine the linear
correlation coefficient between FICO score and interest rate on a 36-month auto loan. - d. Does a linear relation exist between the FICO score and interest rate?
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Fundamentals of Statistics (5th Edition)
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