A Consultant Has Asked You to Distinguish Between Factor Analysis

question 11

Multiple Choice

A consultant has asked you to distinguish between factor analysis and principal component analysis. What is the latter most commonly used for?

• A) To summarize data whilst retaining maximum variance.
• B) To summarize data whilst retaining minimum variance.
• C) To derive as few factors as possible.
• D) To derive as many solutions as possible.

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Definitions:

Mutual Funds

Investment vehicles that pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.

GDP Per Capita

The measure of a country's economic output per person, adjusting for its population size.

Leader

In a financial context, a company, stock, or security that outperforms its peers or the market, often used to indicate trends.

EAFE Index

An equity index that represents the stock performance of developed markets outside of the U.S. and Canada.