Question

1.One-way ANOVA can be applied to:

a)Regression model with several dummy variables (created for a qualitative independent variable) to test the overall usefulness of the model

b)Regression model with several quantitative independent variables to test the overall usefulness of the model

c)Both of the above

D) none of the above

2.

You need to decide whether you should invest in a particular stock.  You would like to invest if the price is likely to rise in the long run.  Assuming the past pattern will continue in the future, and you have data on the daily average price of this stock over the past 12 months.  Your best action is to:

A.Compute the MAD statistic

B.Estimate a least square trend model

C.Compute moving averages

D.Perform exponential smoothing

Answer 1

1. Dummy variables are used in the regression models to represent the categories of a qualitative explanatory variable. Hence, we can use ANOVA for the regression model with dummy variables and separate the model into different groups to run ANOVA. The same cannot be done for a regression model with several quantitative independent variables as it would be impossible to form groups to run ANOVA.

Correct option: A)

2. As the past pattern will continue in the future, we should use the moving average method to smooth out short-term fluctuations and see the long term trend on the stock. This method is commonly used for stock prices. It can be used to identify the trend in the stock and we can be certain whether the price of the stock will rise in the long run.

Correct option: C) computing moving averages