- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 5. Multiple Regression
- Subject 6. Assumptions of the Multiple Linear Regression Model

###
**CFA Practice Question**

Which of the following would not be an assumption underlying a multiple regression model?

B. There must be a linear relationship between the dependent variable and every independent variable.

C. The error term has a variance that is the same for all observations.

D. A linear relationship must also exist between two or more of the independent variables.

A. The error terms are normally distributed.

B. There must be a linear relationship between the dependent variable and every independent variable.

C. The error term has a variance that is the same for all observations.

D. A linear relationship must also exist between two or more of the independent variables.

Correct Answer: D

The fact is that there must be no perfect linear relationship among the independent variables. In other words, there should be no "multicollinearity" among the independent variables.

###
**User Contributed Comments**
3

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

amamed213 |
i think B is not an assumption. the modele don't require a linear relationship between the dependant variable and every independant variable. Can someone explain more ? |

Adi8232 |
If there is not a linear relationship between the dependent variable(Y) and ANY independent Variable(say X3) then why will you use that X3 in the equation, because you want value of Y and adding some non related will be useless (ex. Car mileage(Y) and number of candidates passing CFA L2(X)), will you use Y= a + bX? |

Mikehuynh |
Hi amanmed213, Just need to remember that we are talking about linear regression |