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Free CFA-Level-I Exam Braindumps (page: 131)

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Which of the following are true assumptions underlying linear regression?

(1) For each value of X, there is a group of Y values which are normally distributed (2) The means of these normal distributions of Y values all lie on the straight line of regression (3) The standard deviations of these normal distributions are equal

  1. All of them
  2. None of them
  3. Only (2) and (3)
  4. Only (1) and (3)
  5. Only (1) and (2)

Answer(s): A

Explanation:

All are part of the assumptions of the linear regression. Make sure you know all the assumptions.



The average cost of tuition, room and board at a small private liberal arts college is reported to be $8,500 per term, but a financial administrator at Moravian College believes that the average cost is much higher. A study was conducted using 150 small liberal arts colleges and findings showed that the average cost per term is $9,000 with a standard deviation of $1,200. Let alpha = 0.05. The Ho: Mu less than or equal to $8,500. H1: Mu is bigger than $8,500.
What is the critical z-value for this test?

  1. -1.645
  2. None of these answers
  3. +1.645
  4. -1.96
  5. +1.96

Answer(s): C

Explanation:

From the hypothesis, this is a one tailed test. Since alpha is 0.05. We have 0.05, which gives us a z value of +/1.645. From the Ho we see that the rejection region lies to the right of the mean, so the critical value is +1.645.



Which of the following is/are true?

  1. There are as many values above the mode as below it.
    II. The sum of the differences between the observations in a sample and the mode of the sample equals zero.
    III. The mode is not affected by "outliers."
    IV. A sample has a unique mode.
  2. I only
  3. II, III & IV
  4. II only
  5. I, III & IV
  6. III only
  7. III & IV

Answer(s): E

Explanation:

A sample can have multiple modes, corresponding to all the numbers which appear with the maximum frequency. Note that the mode is not affected by outliers unless an extreme value occurs frequently. In such a case, it is likely that the observed data contain large errors and hence, it must be reexamined. (I) holds for the median not the mode i.e. there are as many values above the median as below it. (II) holds for the mean i.e. the sum of the differences between the observations in a sample and the mean of the sample equals zero.



If the level of confidence is lowered from 95% to 90%, but the allowable error and the standard deviation remain the same, what happens to the required sample size?

  1. None of these answers
  2. Decreases
  3. Increases
  4. Remain unchanged

Answer(s): B

Explanation:

This is related to the degree or confidence and the maximum error allowed. If you want to have a lower degree of confidence, you can have a smaller sample size (given that the standard deviation is constant). If you want 100% confidence, you want to use the whole population as your sample.






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