- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 6. The predicted value of the dependent variable

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**CFA Practice Question**

Reg Reshin, a CFA candidate, has recently concluded that weekend beverage sales are linearly related to average
hourly wages. The regression has an intercept of 10 liters, a correlation coefficient of 0.55, and an R(squared)of 0.30. If the average hourly wage is predicted to be $20, what would be the associated prediction of weekend beverage sales in liters?

A. 11 liters.

B. 16 liters.

C. Cannot be calculated from the information provided.

**Explanation:**What is needed to answer the question is the slope, which is not provided.

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**User Contributed Comments**
11

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

sohappy |
Isn't correlation coefficient the slope? |

humphrey |
slope = Cov(X,Y)/sx square correlation coefficient (ro) = Cov(X,Y)/sx * sy |

lwang014 |
"Correlation" is the slope (ie. Beta) |

vivi2005 |
is humphrey right? I just cannot find such equation in notes... |

Mutizwa |
not too sure about the divisor in humphrey's formula above. the divisor should the variance of X i.e Var X, but this is not vailable in this question. |

lwang014 |
The divisor should be the "variance of market" in order to calculate the beta |

armanaziz |
humphrey right as he says sx square which means variance of x. lwang014 wrong, correlation is r not beta. |

Carol1 |
Slope is Coefficient, and the corelation coeeficient is the relationship between coefficient. |

Dinosaur |
the correlation coefficient is r^2 |

steved333 |
coefficient of determination is r^2. correlation coefficient is r. correlation coefficient can be negative, but determination cannot. you square the r to see what percentage of the variance in y is explained by x. but percentages cannot be negative in this context. see? |

dimitris13 |
slope coefficient (b1) = Cov(X,Y)/s^2x |