In a recent analysis of quarterly revenue for a company over the past five years, a financial analyst decided to model the revenue using a linear trend model. The model was expressed in the form: Revenue = $a + b imes t$ where: $a$ = intercept (the starting revenue at time $t=0$), $b$ = slope (the change in revenue for each unit increase in time), $t$ = time measured in quarters since the beginning of the trend. After fitting the model, the analyst noted that the slope coefficient ($b$) was positive, indicating an upward trend in the revenue. Given this information, which of the following statements is true regarding the implications of the trend model?

Exam

CFA Level 2

Section

Difficulty

Quantitative Methods

Understanding Trend Models in Time-Series Analysis

Medium Time-series Analysis Trend Models

In a recent analysis of quarterly revenue for a company over the past five years, a financial analyst decided to model the revenue using a linear trend model. The model was expressed in the form:

Revenue = $a + b imes t$

where:

$a$ = intercept (the starting revenue at time $t=0$),
$b$ = slope (the change in revenue for each unit increase in time),
$t$ = time measured in quarters since the beginning of the trend.

After fitting the model, the analyst noted that the slope coefficient ($b$) was positive, indicating an upward trend in the revenue. Given this information, which of the following statements is true regarding the implications of the trend model?

The model indicates that the revenue is expected to decrease over time.

The revenue is projected to increase by $b$ for each additional quarter.

There is no significant trend in revenue based on the trend model.

Hint

Submitted13.0K

Correct10.8K

% Correct83%