- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 10. Simple Linear Regression
- Subject 3. Analysis of Variance
CFA Practice Question
An analyst is currently reviewing the following regression analysis:
B. Since the calculated t-statistic of 2.88 exceeds the critical t-statistic, the null hypothesis is rejected.
C. Since the calculated t-statistic of 6.88 falls within the critical t-statistic, the null hypothesis is accepted.
At a significance level of 5%, which of the following statements would best reflect the null hypothesis that coefficient of the first independent variable is equal to 1.0?
A. Since the calculated t-statistic exceeds the critical t-statistic of 1.68, the null hypothesis is rejected.
B. Since the calculated t-statistic of 2.88 exceeds the critical t-statistic, the null hypothesis is rejected.
C. Since the calculated t-statistic of 6.88 falls within the critical t-statistic, the null hypothesis is accepted.
Correct Answer: B
1. Set up the two-tailed t-test. H0: b1 = 1 versus H1: b1 <> 1.
2. Compute the calculated t-statistic: tcalc = (1.72 - 1.0)/0.25 = 2.88.
3. Compute the critical t-statistic (d of f = 50 - 3 - 1) t0.25, 46 = 2.013.
4. Decision: since the calculated t-statistic is greater than the critical t-statistic, the null is rejected. Therefore, the coefficient of the first independent variable is not equal to 1.0.
User Contributed Comments 5
| User | Comment |
|---|---|
| grewei | Wouldn't the critical t-statistic be between 2.000 and 2.021? The answer (B) is the same but I come up with a different critical t-statistic. |
| noonah | Should not we use the F-statistic since it is a multiple regression? |
| noonah | Oops, discard above comment. We can use the t-statistic since we are testing the significance of only one indep. variable, rather than ALL of them. |
| aruffo | What formula is being used to calculate the t-test here? |
| awbronson | @aruffo me thinks... {B(hat) - B)} / Stand Error of B(hat) .... pg 298 in print CFA curriculum |