1．Rhonda Wilson, CFA, is analyzing sales data for the TUV Corp, a current equity holding in her portfolio. She observes that sales for TUV Corp. have grown at a steadily increasing rate over the past ten years due to the successful introduction of some new products.
A) A log-linear trend model, because the data series can be graphed using a straight, upward-sloping line.
B) A linear tend model, because the data series is equally distributed above and below the line and the mean is constant.
C) A linear trend model, because the data series can be plotted along an upward-sloping convex curve.
D) A log-linear trend model, because the data series exhibits a predictable, exponential growth trend.
2．Trend models can be useful tools in the evaluation of a time series of data. However, there are limitations to their usage. Trend models are not appropriate when which of the following violations of the linear regression assumptions is present?
A) Heteroskedasticity.
B) Multicollinearity.
C) Model misspecification.
D) Serial correlation.
3．Dianne Hart, CFA, is considering the purchase of an equity position in Tree Town, Inc, a leading producer of Christmas trees in the
A) log-linear model to analyze the data because the data points are equally distributed above and below the trend line.
B) linear model to analyze the data because the time series pattern displays seasonal trends.
C) log-linear model to analyze the data because it displays seasonal trends.
D) linear model to analyze the data because the mean appears to be constant.
1．Rhonda Wilson, CFA, is analyzing sales data for the TUV Corp, a current equity holding in her portfolio. She observes that sales for TUV Corp. have grown at a steadily increasing rate over the past ten years due to the successful introduction of some new products.
A) A log-linear trend model, because the data series can be graphed using a straight, upward-sloping line.
B) A linear tend model, because the data series is equally distributed above and below the line and the mean is constant.
C) A linear trend model, because the data series can be plotted along an upward-sloping convex curve.
D) A log-linear trend model, because the data series exhibits a predictable, exponential growth trend.
The correct answer was D)
The log-linear trend model is the preferred method for a data series that exhibits a trend or for which the residuals are predictable. In this example, sales grew at an exponential, or increasing rate, rather than a steady rate.
2．Trend models can be useful tools in the evaluation of a time series of data. However, there are limitations to their usage. Trend models are not appropriate when which of the following violations of the linear regression assumptions is present?
A) Heteroskedasticity.
B) Multicollinearity.
C) Model misspecification.
D) Serial correlation.
The correct answer was D)
One of the primary assumptions of linear regression is that the residual terms are not correlated with each other. If serial correlation, also called autocorrelation, is present, then trend models are not an appropriate analysis tool.
3．Dianne Hart, CFA, is considering the purchase of an equity position in Tree Town, Inc, a leading producer of Christmas trees in the
A) log-linear model to analyze the data because the data points are equally distributed above and below the trend line.
B) linear model to analyze the data because the time series pattern displays seasonal trends.
C) log-linear model to analyze the data because it displays seasonal trends.
D) linear model to analyze the data because the mean appears to be constant.
The correct answer was C)
A log-linear model is more appropriate when analyzing data that displays seasonality or the values vary by month.
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