- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 10. Simple Linear Regression
- Subject 3. Analysis of Variance

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**CFA Practice Question**

Which of the following statements least accurately describes the interpretation of the coefficient of determination?

A. A high coefficient of determination implies a high degree of dispersion around the regression line.

B. A high coefficient of determination does not always imply that the regression is economically sound.

C. Coefficient of determination is the square of the correlation coefficient and therefore is always positive.

**Explanation:**The coefficient of determination is the square of the correlation coefficient. Therefore, if there is a high degree of dispersion around the regression line, the correlation coefficient will be low and hence its square will be low as well. Also, since the coefficient of determination is a square, it will always be positive.

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