CFA Practice Question

There are 208 practice questions for this study session.

CFA Practice Question

Which statement(s) is (are) true?

I. Exponential growth is growth by a constant amount from one period to the next.
II. Exponential growth should be modeled using log-linear trend models.
III. If we describe a time series by this equation: yt = eb0 + b1t, then the growth rate in the time series over two consecutive periods is eb1.
Correct Answer: II

I: It should be a constant growth rate from one period to the next.
III. The growth rate should be eb1 - 1.

User Contributed Comments 5

User Comment
Offboard Could someone explain the 3rd satement? how to get exp(b1)-1?
VenkatB Y(T) = e^ (b0 + b1t) = e^ b0 * e ^ b1t
For example
let us assume b0 is some constant (=2) and b1=4
________
when t =1
Y(1) = e^(2+4*1) = e^6
______
when t=2
Y(2) = e^(2+4*2) = e^10
_____________
when t=3
Y(2) = e^(2+4*3) = e^14
_____________

So the growth rate is e^4 (=e^b1) , not sure how they are saying e^b1 -1
aravinda Here it is.....

Y(t) = e^(b0 + b1t) and Y(t+1) = e^{ b0 + b1(t+1) }

Growth Rate between 2 consecutive periods ==> Y(t+1) - Y(t) / Y(t)...just a HPR

==> { e^[ b0 + b1(t+1) ] - e^ ( b0 + b1t) } / e^ (b0 + b1t)
==> { e^ [b0 + b1(t+1)] / e^ (b0 + b1t) } - 1
==> { e^ [b0 + b1(t+1) * e^ - (b0 + b1t) } - 1
==> { e^ [b0 + b1t + b1 - b0 - b1t] } - 1
==> e ^ ( b1) - 1
VenkatB Thanks aravinda
StJohnDale Thanks Aravinda..good one
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