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PROBLEM 1 [16 pts] - to be answered by everyone
The file bankingfull.txt attached to this assignment contains the full dataset. You analyzed a smaller set for
a previous assignment. It provides data acquired from banking and census records for different zip codes
in the bank's current market. Such information can be useful in targeting advertising for new customers or
for choosing locations for branch offices. The data show
median age of the population (AGE)
median years of education (EDUCATION)
median income (INCOME) in $
median home value (HOMEVAL) in $
median household wealth (WEALTH) in $
average bank balance (BALANCE) in $
The goal of this exercise is to define a regression model to predict the average bank balance as a function
of the other variables.
a )
Create scatterplots to visualize the associations between bank balance and the other five variables.
Include the relevant output. Discuss the patterns displayed by the scatterplot. Also, explain if the
associations appear to be linear? (you can create either scatterplots or a matrix plot)
Compute correlation values of bank balance vs the other variables. Include the relevant output.
Interpret the correlation values, and discuss which variables appear to be strongly associated.
Fit a regression model of balance vs the other five variables (model M1). Compute the VIF statistics
for each x-variable and analyze whether there is a problem of multicollinearity and take
appropriate action. Include the relevant output. Discuss your answer.
Apply your knowledge of regression analysis to define a better model M2. Include the SAS output
for both models and answer the following questions :
a. Analyze the adj-R2 values for both models M1 and M2. Which model has the largest adj-R2
b. Create residual plots (standardized residuals vs predicted; standardized residuals vs x-
variables; and normal plot of residuals). Analyze the residual plots to check if the regression
model assumptions are met by the data. Include the relevant output and discuss your
Analyze if there are
If so what a
Subject: Math

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