### CFA Practice Question

There are 208 practice questions for this study session.

### CFA Practice Question

The AR(1) model predicts that

I. If its current value is b0/(1 - b1), the time series will stay the same.
II. If its current value is below b1/(1 - b0), the time series will increase.
III. If its current value is above b1/(1 - b0), the time series will decrease.
IV. If a time series is covariance-stationary then it has a finite mean-reverting level.
A. All of them
B. I and IV
C. I, II and III
Explanation: II and III: the level should be b0/(1 - b1).

IV: All covariance-stationary time series have a finite mean-reverting level.

### User Contributed Comments7

User Comment
tim2 ohh tricky!
Yurik74 just need to be attentive : (
sg2006 why isn't ii ans iii correct? If below the level the next value will go up and vice versa
ericczhang ...that's just being cheeky.
dalue I have the same question as sg2006. Why not II and III?
pmdallman Very cheeky indeed
pmdallman Dalue and sg2006 - look at the order of b1 and b0 in II and III - they've been inverted and are no longer in the right sequence
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