Question

# Table #10.1.6 contains the value of the house and the amount of rental income in a...

Table #10.1.6 contains the value of the house and the amount of rental income in a year that the house brings in ("Capital and rental," 2013). Find the correlation coefficient and coefficient of determination and then interpret both.

Table #10.1.6: Data of House Value versus Rental

 Value Rental Value Rental Value Rental Value Rental 81000 6656 77000 4576 75000 7280 67500 6864 95000 7904 94000 8736 90000 6240 85000 7072 121000 12064 115000 7904 110000 7072 104000 7904 135000 8320 130000 9776 126000 6240 125000 7904 145000 8320 140000 9568 140000 9152 135000 7488 165000 13312 165000 8528 155000 7488 148000 8320 178000 11856 174000 10400 170000 9568 170000 12688 200000 12272 200000 10608 194000 11232 190000 8320 214000 8528 208000 10400 200000 10400 200000 8320 240000 10192 240000 12064 240000 11648 225000 12480 289000 11648 270000 12896 262000 10192 244500 11232 325000 12480 310000 12480 303000 12272 300000 12480

#### Homework Answers

Answer #1

If we run the linear model, based on the above data we have correlation of coeffecient is 0.7647

While the correlation of the determinatin is the 0.5847

As the correlation of coeffecient is 0.7647 so we can say that correlation of both these variable is high and moving in the same direction so it is a healthy correlation between two variable.

Howevere correlation of determination is low 0.5847, which indicates how the independant variable can explain the variability of dependant variable. As independant variable can explain upto 0.5847 of the total variablity so it is a bit lower side in the linear modle.

It indicates that probabiliy, we are missing another independant factor which should also explain the additinal variablity of the dependant variable.

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