Expected Value of Y and X in Regression Analysis | CFA Level 1 Exam Preparation

Intercept Term Calculation in Regression Analysis | CFA Level 1 Exam Prep

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The expected value of Y is 9 and the expected value of X is 3. If X and Y are uncorrelated and you run a regression of Y against X, the intercept term will equal

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A. B. C. D.

A

Since the correlation is given to be zero, the slope will be zero and hence, R-square will be zero i.e. the variance of the ranking of a trader in one year is not explained to any extent by his ranking in the previous year. Thus, regardless of his ranking in previous year, he is likely to be either "Great" or "Not- great" in this year. His expected score is then equal to 0.5*1 + 0.5*0 = 0.5. The expected value of the dependent variable is equal to the intercept term when slope equals zero

(remember this!!)

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