You are a bank marketing manager. Regression analysis shows the following relationship between mortgage contracts (M), and interest rate (I). C is the constant term from the regression.

M = C + bI

1) Predict the number of mortgage contracts sold if C is 1000, b is -2,000 (negative 2,000), and I is 7% (.07).

2) Does this regression make sense? describe what is happening in business terms. Are consumers responding the way you would expect? (If you are not sure substitute in various values for I and review the results.)

3) This equation was estimated using mortgage and interest rate data taken from the 5 years. In that time researchers observed interest rates between 4.25 and 9.75 percent. A marketing person wanted to use this equation to predict contracts if the interest rate drops to 2%. Do you think this is a good idea? Why or why not.