FRM Part I · FRM Exam Part I · Linear Regression
A simple regression has an estimated slope of 0.80 with standard error 0.32, estimated from 22 observations. The critical t-value for a two-sided 5% test with 20 degrees of freedom is 2.086. Which statement is correct about the test of H0: slope = 0?
The t-statistic is the slope divided by its standard error, 0.80/0.32 = 2.50. Since this exceeds the critical value of 2.086 with 20 degrees of freedom, the null hypothesis of a zero slope is rejected at the 5% level.
- AThe t-statistic is 2.50 and H0 is rejected at the 5% levelCorrect
- BThe t-statistic is 0.40 and H0 is not rejected
- CThe t-statistic is 2.50 and H0 is not rejected at the 5% level
- DThe t-statistic is 1.25 and H0 is not rejected
Explanation
t = 0.80/0.32 = 2.50, which exceeds 2.086 in absolute value, so H0 is rejected. 0.40 is the inverse ratio, and 1.25 results from a mistaken calculation.
Did you get it right without looking?
One question tells you little. A timed set on Linear Regression shows your real accuracy, how long you take and where you lose marks.
More Linear Regression questions
- Under the Gauss-Markov assumptions, which statement correctly describes the OLS estimator?
- In a simple regression of Y on X with n = 5 observations, X values are 1, 2, 3, 4, 5 and the OLS slope is 2.0. The residual sum of squares i…
- In the simple linear regression Y = a + bX + e estimated by OLS, which condition is required for the OLS slope estimator to be unbiased?
- A risk analyst estimates a linear regression by OLS and later finds that the error variance changes with the level of an explanatory variabl…
- Under the Gauss-Markov conditions, OLS is described as BLUE. What does the term 'best' mean in this context?
- An analyst regresses a bond portfolio's yield change on changes in a benchmark yield using 42 observations. The estimated slope is 0.80 with…