CFA Level I · CFA Level I Exam · Applications of Simple Linear Regression in Finance
A log-lin regression of ln(sales) on years of operation gives a slope coefficient of 0.08. The slope is most likely interpreted as sales:
A slope of 0.08 in a log-lin model means sales change by about 8% for each additional year of operation. The dependent variable is in logs, so the coefficient is a proportional change per one-unit change in X.
- Arising by 0.08 units for each additional year
- Brising by about 8% for each additional yearCorrect
- Crising by 0.08% for each 1% increase in years
Explanation
In a log-lin model, the slope is the relative change in Y for an absolute one-unit change in X, so 0.08 means about 8% growth per year. Option A ignores the log on Y. Option C is the log-log elasticity interpretation.
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