- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Evaluating Regression Model Fit and Interpreting Model Results
- Subject 3. The Use of Multiple Regression for Forecasting
CFA Practice Question
Consider the following multiple regression results of the return on capital (ROC) on performance measures (profit margin (%), sales, and debt ratio).
Given that sales = 1000, debt ratio = 20, and profit margin = 20%, the predicted value of the return on capital (ROC) according to the regression model is closest to:
A. 7.38%
B. 8.29%
C. 16.03%
Correct Answer: C
The regression equation is expressed as:
ROC= 8.653 + 0.0009S + 0.0229DR + 0.2996 PM
ROC = 8.6531 + (0.0009 x 1000) + (0.0229 x 20) + (0.2996 x 20) = 16.03%
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