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Basic Question 7 of 11
Consider an AR(1) model with the following prediction equation: xt = 1.8 + 0.6 xt?1. If the current value of x is 5.0, the two-step-ahead forecast is closest to:
A. 4.28
B. 4.68
C. 4.80
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I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
describe the structure of an autoregressive (AR) model of order p and calculate one- and two-period-ahead forecasts given the estimated coefficients;
explain how autocorrelations of the residuals can be used to test whether the autoregressive model fits the time series;
explain mean reversion and calculate a mean-reverting level;
contrast in-sample and out-of-sample forecasts and compare the forecasting accuracy of different time-series models based on the root mean squared error criterion;
CFA® 2025 Level II Curriculum, Volume 1, Module 5.