- CFA Exams
- CFA Exam: Level II 2021
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 2. Interpreting a regression coefficient

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**CFA Practice Question**

Which of the following are NOT assumptions of linear regression?

II. The independent variable, X, is not random.

III. The expected value of the error (residual) term is 0.

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

V. The residuals are independently distributed.

VI. 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 independent variable, X, is not random.

III. The expected value of the error (residual) term is 0.

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

V. The residuals are independently distributed.

VI. 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. |