CFA Level I · CFA Level I Exam · Applications of Simple Linear Regression in Finance
A simple linear regression ANOVA table shows a regression mean square of 60 and an error mean square of 4, with 1 degree of freedom for regression. The F-statistic for testing the slope coefficient is closest to:
The F-statistic is 15. It is the regression mean square divided by the error mean square, 60/4. Inverting the ratio gives 0.07 and multiplying gives 240, both wrong. In simple regression this F equals the squared t-statistic of the slope.
- A0.07
- B15.00Correct
- C240.00
Explanation
F = MSR/MSE = 60/4 = 15. The value 0.07 inverts the ratio (4/60). The value 240 multiplies the mean squares instead of dividing them. The F-statistic equals the square of the slope's t-statistic in simple regression.
Did you get it right without looking?
One question tells you little. A timed set on Applications of Simple Linear Regression in Finance shows your real accuracy, how long you take and where you lose marks.
More Applications of Simple Linear Regression in Finance questions
- An analyst builds a prediction interval for a dependent variable using a simple linear regression. Holding the confidence level and the esti…
- In a simple linear regression of a stock's excess returns on the market's excess returns, the sum of squares total (SST) is 80 and the sum o…
- An analyst estimates the regression ln(Y) = b0 + b1X, where X is the number of years since a firm's founding and Y is its revenue. This func…
- In a log-log regression of ln(quantity demanded) on ln(price), the estimated slope is -1.4. The slope is best interpreted as:
- A regression of a fund's returns on a benchmark's returns yields an intercept (alpha) of 0.9% with a t-statistic of 1.40. The critical t-val…
- A researcher finds that the residuals from a linear regression of company revenue on years since founding fan out and show a curved pattern,…