SOA Exam SRM Sample Question 14
Study guide: Exam SRM
From an investigation of the residuals of fitting a linear regression by ordinary least squares it is clear that the spread of the residuals increases as the predicted values increase. Observed values of the dependent variable range from 0 to 100.
Determine which of the following statements is/are true with regard to transforming the dependent variable to make the variance of the residuals more constant.
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I. Taking the logarithm of one plus the value of the dependent variable may make the variance of the residuals more constant.
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II. A square root transformation may make the variance of the residuals more constant.
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III. A logit transformation may make the variance of the residuals more constant.
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A) None
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B) I and II only
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C) I and III only
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D) II and III only
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E) The correct answer is not given by (A), (B), (C), or (D).
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