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Basic Question 2 of 5
We are interested in finding the linear relation between the number of widgets purchased at one time and the cost per widget. The following data has been obtained:
B. this is obvious nonsense. The regression line must be incorrect.
C. this is obvious nonsense. This reminds us that predicting Y outside the range of X values in our data is a very poor practice.
Suppose the regression line is YHAT = -2.5X + 60. We compute the average price per widget if 30 are purchased and observe YHAT = -15 dollars:
A. obviously we are mistaken; the prediction YHAT is actually +15 dollars.
B. this is obvious nonsense. The regression line must be incorrect.
C. this is obvious nonsense. This reminds us that predicting Y outside the range of X values in our data is a very poor practice.
User Contributed Comments 5
| User | Comment |
|---|---|
| LondonBoy | -15 dollars means the supplier will be paying us to take the goods! |
| danlan2 | Good question. It is nonsense in real life. |
| business | why not b |
| SMcalister | @business, I think it's because the regression line is correct for the set of data that we're given. It describe the relationship between X=1 and X=15 quite well in fact. The real problem is that this we're trying to use a linear regression for something that's not going to be linear when it gets closer to zero |
| birdperson | @business the regression is fine, the user of the regression line outside of the range of x that was used to form the regression is full of nonsense |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
calculate and interpret the predicted value for the dependent variable, and a prediction interval for it, given an estimated linear regression model and a value for the independent variable
CFA® 2025 Level I Curriculum, Volume 1, Module 10.