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Which of the following statements best describe the line of best fit for a simple linear regression?
Trisha wishes to determine the relationship between the quarterly sales surprise of a company (X) and the company’s quarterly stock return (Y). After fitting a simple linear regression, it is observed that the standard deviation of the error term increases with higher levels of sales surprise. The data is said to exhibit:
Minsu is an engineer who ran a simple linear regression on a sample size of 33 to explain the variation in battery life against ambient temperature. The sample standard deviation of battery life was 1.625 hours, and the explained variation was 30.2.
(a) The coefficient of determination for the model is closest to:
Minsu is an engineer who ran a simple linear regression on a sample size of 33 to explain the variation in battery life against ambient temperature. The sample standard deviation of battery life was 1.625 hours, and the explained variation was 30.2.
(b) The standard error of estimate for the model is closest to:
Minsu is an engineer who ran a simple linear regression on a sample size of 33 to explain the variation in battery life against ambient temperature. The sample standard deviation of battery life was 1.625 hours, and the explained variation was 30.2.
(c) The F-statistic of the regression is closest to:
Trinh Nguyen, CFA believes that there is an exponential relation between long-term stock return (R) and gross profit margin (GPM) in the pharmaceutical industry, fitting in the following model: lnR = b0 + b1 x GPM. He collected a sample of long-term returns for 12 pharma companies and their average gross margins for the corresponding periods, and obtained the following regression results:
Source of Variation | DF | Sum of Sq | Mean Sum of Squares |
---|---|---|---|
Regression | 1 | 95.5 | 95.5 |
Residual | 10 | 28.9 | 2.89 |
Coefficient | Std Error | t-statistic | p-value | |
---|---|---|---|---|
Intercept | 1.85 | 1.047 | 1.767 | ~0.06 |
GPM | 0.0082 | 0.0029 | 2.828 | ~0.02 |
(a) Based on t-statistic, at 5% significance, Nguyen should conclude that:
Trinh Nguyen, CFA believes that there is an exponential relation between long-term stock return (R) and gross profit margin (GPM) in the pharmaceutical industry, fitting in the following model: lnR = b0 + b1 x GPM. He collected a sample of long-term returns for 12 pharma companies and their average gross margins for the corresponding periods, and obtained the following regression results:
Source of Variation | DF | Sum of Sq | Mean Sum of Squares |
---|---|---|---|
Regression | 1 | 95.5 | 95.5 |
Residual | 10 | 28.9 | 2.89 |
Coefficient | Std Error | t-statistic | p-value | |
---|---|---|---|---|
Intercept | 1.85 | 1.047 | 1.767 | ~0.06 |
GPM | 0.0082 | 0.0029 | 2.828 | ~0.02 |
(Critical value at 5% level: F=4.96)
(b) Based on F-statistic, at 5% significance, Nguyen should conclude that:
Trinh Nguyen, CFA believes that there is an exponential relation between long-term stock return (R) and gross profit margin (GPM) in the pharmaceutical industry, fitting in the following model: lnR = b0 + b1 x GPM. He collected a sample of long-term returns for 12 pharma companies and their average gross margins for the corresponding periods, and obtained the following regression results:
Source of Variation | DF | Sum of Sq | Mean Sum of Squares |
---|---|---|---|
Regression | 1 | 95.5 | 95.5 |
Residual | 10 | 28.9 | 2.89 |
Coefficient | Std Error | t-statistic | p-value | |
---|---|---|---|---|
Intercept | 1.85 | 1.047 | 1.767 | ~0.06 |
GPM | 0.0082 | 0.0029 | 2.828 | ~0.02 |
(c) Based on the model, the predicted long term return for a company with an average gross profit margin of 40% is closest to:
Why is the language of the Learning Outcome Statements (LOS) different from the curriculum?
The LOS are protected under the CFA Institute's copyright, and we don't have permission to duplicate them verbatim. Therefore, we've rephrased the LOS and included alphabetical labels (a, b, c, …) to simplify cross-referencing with the original LOS in the curriculum when needed.
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Have you ever gotten stuck in your study because you can’t remember a formula, or what a specific term means? Now, say goodbye to scanning through all the videos and ploughing through pages and pages just to find what you are looking for. All the important formulas, definitions and diagrams you need for the exam are now at your fingertips at prepnuggets.com/glossary.
What’s more, these quick references are deeply integrated in our lessons, so you get a good idea of what the lesson covers even before watching the video. The references also point you to specific video lessons where it is covered, so you can quickly access the corresponding video to learn more about the term.
Available now for all Level I topics, this service is exclusive for our Premium and Pro members only. We will progressively add the rest of the topic areas over the next few months.
We think this is a game-changer for your CFA success!
Are you a CFA Level I candidate, or someone who is exploring taking the CFA exam? Four years ago, I was in your shoes. I am a Computer Engineering graduate and have been working as an engineer all my life. Having developed a keen interest in finance, I decided on a career switch to the finance field and enrolled into the CFA program at the same time.
Adjusting to the drastic career change was tough. I naturally neglected the preparation for my Level I exam in June 2014. It was not until the middle of March 2014 that I realized I only had a little more than 2 months to the exam. To compound my problems, I basically did not have a preparation strategy. Having no background in finance at all, I tried very hard to read the curriculum from cover to cover, but eventually that fell flat. I can still recall the number of times I dozed off while studying, or just going back and forth trying to understand even the simplest concept. My mind simply could not keep up after a hard day at work.
Does all these sound familiar to you? Well, take heart. No matter how bleak it seems, at least sit for the exam and treat it as a learning experience. That was basically my attitude as I burrowed through my exam prep with toil and stress. By God’s grace, I did pass my Level I exam in June 2014. It was an experience I would not want to revisit though.
For the Level II exam, I endeavoured not to repeat the mistakes I made. Based on the Pareto 80/20 principle, I learnt to extract the most essential bits from the curriculum enough to give me that 80% result to pass. Being a visual learner, I took notes and summaries in pictorial form. Instead of reserving huge segments of time to study, I carved out pockets of time to learn and practise – accommodating to my full-time job. I managed to pass my Level II and Level III exams consecutively with considerably less effort and stress than when I did my level I.
I love the CFA Program and truly value the skills and ethics that are imparted to make me a better finance professional. My desire is to help candidates who are keen to pursue this path to do so in the most effective and painless process as possible – based on the lessons that I learnt as a candidate. I have set up PrepNuggets with the vision to revolutionise learning by using technology, catering to the short attention span that we can afford. If this makes sense to you, join the PrepNuggets community by signing up for your free student account. I am confident that the materials that we have laboriously crafted will bring you closer to that dream pass with just that 20% effort. Let us do the hard work for you.
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