CFA Practice Question

There are 208 practice questions for this study session.

CFA Practice Question

Which of the following is (are) true of the slope of the least-squares regression line?

I. It has the same sign as the correlation coefficient.
II. the square of the slope equals the fraction of the variation in the dependent variable that is explained by the independent variable.
III. It is unitless.
Correct Answer: I only

I is correct since b = r sy/sx, where b is the slope, r is the correlation coefficient, and the ratio of the standard deviations, sy/sx, is always positive.
II: It is the square of the correlation coefficient that equals the fraction of the variation in the dependent variable that is explained by the independent variable. While the slope and the correlation coefficient have the same sign, their numerical values and other properties are different.
III: the unit of slope is units of y divided by units of x. The correlation coefficient is unitless, not the slope.

User Contributed Comments 2

User Comment
Sandy69 Since information is non - material hence can be used
danlan Do not be confused by correlation coefficient and slope of the regression line. Correlation coefficient is the geometric average of two slopes (exchange dependant and independant variables), and has same sign as each slope, but the value can be different.
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