CFA Level I · CFA Level I Exam · Applications of Simple Linear Regression in Finance
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 functional form is best described as:
The model is log-lin, because the dependent variable is transformed with the natural log while the independent variable stays in levels. The slope measures the proportional change in revenue for a one-unit change in X.
- Alog-linCorrect
- Blin-log
- Clog-log
Explanation
The dependent variable is in natural logs while the independent variable is in levels. This is the log-lin model. Its slope gives the relative change in Y for an absolute one-unit change in X.
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