CFA Level I · CFA Level I Exam · Introduction to Financial Data Science
A feature has values ranging from 10 to 50, with a minimum of 10 and a maximum of 50. An analyst applies min-max normalization. The normalized value of an observation equal to 18 is closest to:
The normalized value is closest to 0.20. Min-max normalization subtracts the minimum from the observation and divides by the range: (18 − 10) divided by (50 − 10) equals 8/40, or 0.20. Using the maximum rather than the range as the divisor gives incorrect results.
- A0.16
- B0.20Correct
- C0.36
Explanation
Min-max normalization = (X − min)/(max − min) = (18 − 10)/(50 − 10) = 8/40 = 0.20. The 0.36 option results from dividing 18 by 50 (wrong base). The 0.16 option divides 8 by 50, using the maximum instead of the range.
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