- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 10. Simple Linear Regression
- Subject 5. Prediction Using Simple Linear Regression and Prediction Intervals
CFA Practice Question
We are interested in finding the linear relation between the number of widgets purchased at one time and the cost per widget. The following data has been obtained:
B. this is obvious nonsense. The regression line must be incorrect.
C. this is obvious nonsense. This reminds us that predicting Y outside the range of X values in our data is a very poor practice.
Suppose the regression line is YHAT = -2.5X + 60. We compute the average price per widget if 30 are purchased and observe YHAT = -15 dollars:
A. obviously we are mistaken; the prediction YHAT is actually +15 dollars.
B. this is obvious nonsense. The regression line must be incorrect.
C. this is obvious nonsense. This reminds us that predicting Y outside the range of X values in our data is a very poor practice.
Correct Answer: C
User Contributed Comments 5
| User | Comment |
|---|---|
| LondonBoy | -15 dollars means the supplier will be paying us to take the goods! |
| danlan2 | Good question. It is nonsense in real life. |
| business | why not b |
| SMcalister | @business, I think it's because the regression line is correct for the set of data that we're given. It describe the relationship between X=1 and X=15 quite well in fact. The real problem is that this we're trying to use a linear regression for something that's not going to be linear when it gets closer to zero |
| birdperson | @business the regression is fine, the user of the regression line outside of the range of x that was used to form the regression is full of nonsense |