CFA Practice Question

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CFA Practice Question

Which statement is false?

A. In PCA, composite variables are uncorrelated.
B. In PCA, composite variables can be easily labeled as they come directly from the initial data set.
C. In practice, retained principal components should be able to explain 85% to 95% of total variance in the initial data set.
Correct Answer: B

B is false. PCA aims to summarize or reduce highly correlated features of data into a few main, uncorrelated composite variables. It is usually perceived as a black box by its end users.

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