Least Squares Trend Analysis Involves Fitting a Straight Line Through

question 4

Multiple Choice

Least squares trend analysis involves fitting a straight line through a series of data, which, by definition:

• A)minimizes the distance of each data point from the line, and minimizes the squared area above and below the trendline.
• B)minimizes the distance between each data point.
• C)must include at least one peak and at least one trough.
• D)must include a minimum of 20 points to get a usable trendline.

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Definitions:

Market Average

A statistical measure that represents the overall market or a specific segment of it, commonly used to track market performance.

Return

The profit or deficit experienced on an investment during a given period, represented as a percentage of the original investment's value.

Security Market Line

A line that represents the relationship between the risk of an investment and its expected return, used in the capital asset pricing model.

Market Risk Premium

The additional return expected by investors for taking on the higher risk of investing in the stock market over a risk-free rate.