CFA Level 2
Quantitative Methods

Trend Model Interpretation

Easy Time-series Analysis Trend Models

ABC Manufacturing Corporation is analyzing its sales data to identify long-term trends. The sales data over the last eight years is characterized by a consistent upward movement. The financial analyst determines that a linear trend model will best fit the data and expresses this model with the equation:

$$ S_t = eta_0 + eta_1 t + ext{error} $$

Where:

  • $$ S_t $$ = Sales in year t
  • $$ eta_0 $$ = Intercept of the regression line
  • $$ eta_1 $$ = Slope of the regression line
  • $$ t $$ = Time variable (e.g., year number)

If the linear trend model indicates that $ eta_1 = 500 $, what does this information imply about the sales?

Hint

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