- CFA Exams
- CFA Exam: Level II 2021
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 7. Analysis of variance (ANOVA)

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**CFA Practice Question**

An analyst is reviewing the following data produced after a regression analysis:

Regression Sum of the Squares (RSS) = 437

Sample data included 25 observations.

B. 91.8% of the variation in the dependent variable may be explained by the regression model.

C. 95.8% of the variation in the dependent variable may be explained by the regression model.

Total Sum of Squares (TSS) = 476

Sum of the Squares of the Errors (SSE) = 39

Regression Sum of the Squares (RSS) = 437

Sample data included 25 observations.

Using the analysis of variance (ANOVA) approach, which of the following statements would be true?

A. 91.1% of the variation in the dependent variable may be explained by the regression model.

B. 91.8% of the variation in the dependent variable may be explained by the regression model.

C. 95.8% of the variation in the dependent variable may be explained by the regression model.

Correct Answer: B

Coefficient of Determination: R

^{2}_{yx}= RSS/TSS or 1 - SSE/TSS = 437/476 or 1 - 39/476 = 0.918.91.8% of the variation in the dependent variable may be explained by the regression model.

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**User Contributed Comments**
1

User |
Comment |
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quanttrader |
RSS = explained variation SSE = unexplained variation |