FRM Part I · FRM Exam Part I · Linear Regression
In a simple linear regression of Y on X with an intercept, the sample correlation between X and Y is 0.60, the sample standard deviation of X is 4, and the sample standard deviation of Y is 10. What is the OLS slope coefficient?
The OLS slope equals the correlation times the ratio of the standard deviation of Y to that of X: 0.60 x 10/4 = 1.50. Using the inverted ratio gives the wrong value of 0.24.
- A0.24
- B1.50Correct
- C2.40
- D6.00
Explanation
Slope = correlation x (sd of Y / sd of X) = 0.60 x 10/4 = 1.50. Choosing 0.24 inverts the ratio (0.6 x 4/10), and 2.40 uses 0.6 x 4.
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