ABC Corporation conducted a regression analysis to model its sales based on advertising spend (X1), price (X2), and market size (X3). The estimated regression equation is given by: $$Sales = 200 + 3.5X_1 - 1.2X_2 + 0.8X_3$$ In this regression: $X_1$ = Advertising spend (in thousands of dollars) $X_2$ = Price (in dollars) $X_3$ = Market size (in thousands of units) The coefficients in the regression can be interpreted to understand the impact of the independent variables on sales. Which of the following statements correctly interprets the coefficient for advertising spend ($X_1$)?

Exam

CFA Level 2

Section

Difficulty

Quantitative Methods

Interpreting Regression Coefficients in Sales Analysis

Medium Multiple Regression Analysis Regression Coefficients

ABC Corporation conducted a regression analysis to model its sales based on advertising spend (X1), price (X2), and market size (X3). The estimated regression equation is given by:

$$Sales = 200 + 3.5X_1 - 1.2X_2 + 0.8X_3$$

In this regression:

$X_1$ = Advertising spend (in thousands of dollars)
$X_2$ = Price (in dollars)
$X_3$ = Market size (in thousands of units)

The coefficients in the regression can be interpreted to understand the impact of the independent variables on sales. Which of the following statements correctly interprets the coefficient for advertising spend ($X_1$)?

A $1,000 increase in advertising spend is associated with an increase in sales of $3,500.

For every $1 increase in advertising spend, sales increase by $3.50.

Advertising spend has no significant effect on sales.

Hint

Submitted6.1K

Correct4.4K

% Correct72%