CFA Practice Question
If you find two variables that are highly correlated in a simulation model, you should ______.
II. build the correlation explicitly into the simulation process.
III. drop the two variables as they are correlated and thus biased.
I. pick the variable that has a smaller impact on value.
II. build the correlation explicitly into the simulation process.
III. drop the two variables as they are correlated and thus biased.
Correct Answer: II
I is incorrect; you should focus on the variable that has the bigger impact on value.
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