If the regression results for a linear probability model of mortgage application are given by: Approved_i = 0.6(0.12) + -0.05(0.001)Debt2IncomeRatio_i, with standard errors reported in parenthesis. How should we interpret the coefficient on the debt-to-income ratio variable? A) Increasing your debt to income ratio by 1 decreases your probability of being approved by 0.05. B) Increasing your debt to income ratio by 1 decreases your probability of being approved by 0.55. C) The probability of being approved for a mortgage is 0.05. D) The probability of being approved for a mortgage is 0.6.

Question

Quizplus · Accepted Answer

The coefficient on the debt-to-income ratio variable is -0.05, which means that for each unit increase in the debt-to-income ratio, the probability of being approved for a mortgage decreases by 0.05 or 5 percentage points.

If the Regression Results for a Linear Probability Model of Mortgage