Interpretation of Regression Coefficient in Loan Default Rate Model

Very Easy Multiple Regression Analysis Regression Coefficients

Consider a multiple regression analysis conducted to understand the relationship between FICO scores, annual income, and loan default rates. The regression model can be expressed as follows:

$$ ext{Loan Default Rate} = eta_0 + eta_1 imes ext{FICO Score} + eta_2 imes ext{Annual Income} + ext{error} $$

In this analysis, $ eta_1 $ represents the change in the Loan Default Rate for each one-point increase in the FICO Score, holding Annual Income constant.

If the estimated coefficient $ eta_1 $ is found to be -0.03, what does this imply?

For each one-point increase in the FICO Score, the Loan Default Rate is expected to decrease by 3%.

For each one-point increase in the FICO Score, the Loan Default Rate is expected to decrease by 0.03.

For each one-point increase in the FICO Score, there is no expected change in the Loan Default Rate.

Hint

Submitted6.2K

Correct4.4K

% Correct71%