- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 5. Time-Series Analysis
- Subject 2. Autoregressive (AR) Time-Series Models
CFA Practice Question
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
Correct Answer: B
One-step ahead forecast: x0 = 5.0, then x̂1 = 1.8 + 0.6 x 5 = 4.8
One-step ahead forecast: x1 = 4.8, then x̂2 = 1.8 + 0.6 x 4.8 = 4.68
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