- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 10. Simple Linear Regression
- Subject 2. Assumptions of the Simple Linear Regression Model

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**CFA Practice Question**

Which of the following is not an assumption underlying linear regression?

B. The explanatory variable is controllable.

C. The underlying distribution of the error terms is standard normal.

A. Linear relationship implies linearity in the parameters.

B. The explanatory variable is controllable.

C. The underlying distribution of the error terms is standard normal.

Correct Answer: C

The error terms are assumed to be normal with constant variance, which can be different from 1 (standard), and mean 0 (standard).

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**User Contributed Comments**
1

User |
Comment |
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mazen1967 |
standard normal segma=1 av=0 |