CFA Practice Question

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CFA Practice Question

For a given line of best fit, you compute that r = 0.5204 using n = 9 data points, and the critical value is 2.3646. Can the line be used for prediction?

Correct Answer: No

The test statistic is calculated to be 1.6124, smaller than the critical value. We fail to reject the null hypothesis of correlation = 0.

There are two methods of making the decision. The two methods are equivalent and give the same result. The textbook uses a table of critical values. You can use the p-value too.

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