- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 10. Simple Linear Regression
- Subject 6. Functional Forms for Simple Linear Regression
CFA Practice Question
Consider a demand function: Q = α Pβ, where Q is the quantity demanded, α is a shifting parameter, P is the price of the good, and the parameter β is less than zero for a downward-sloping demand curve. You can transform the data into a ______ model to achieve linearity.
A. The lin-log model
B. The log-lin model
C. The log-log model
Explanation: If you take the natural log of both sides, you get: lnQ = lnα + β lnP, where you can treat lnα as the intercept.
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