- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 7. Introduction to Linear Regression
- Subject 3. Assumptions of the Simple Linear Regression Model

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**CFA Practice Question**

Which of the following are NOT assumptions of linear regression?

II. The variance of the error term is the same for all observations.

III. The residuals are independently distributed.

IV. The error term is normally distributed.

I. There is a linear (straight line) relationship between the dependent variable Y and the independent variable X.

II. The variance of the error term is the same for all observations.

III. The residuals are independently distributed.

IV. The error term is normally distributed.

Correct Answer: None of the above

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**User Contributed Comments**
5

User |
Comment |
---|---|

wtwaf |
memory work? |

DariSH |
What about 2? is it an assumption? really? |

ericczhang |
Well that's a particularily strong assumption that's really only true in stuff like medical testing. |

ybavly |
what about 3? what does that even mean? |

jpowers |
Three means the expected difference between the observed value and the predicted value is zero. |