Which of the Following Correctly Identifies a Limitation of Logarithmic

question 19

Multiple Choice

Which of the following correctly identifies a limitation of logarithmic transformation of variables?

• A)Taking log of variables make OLS estimates more sensitive to extreme values in comparison to variables taken in level.
• B)Logarithmic transformations cannot be used if a variable takes on zero or negative values.
• C)Logarithmic transformations of variables are likely to lead to heteroskedasticity.
• D)Taking log of a variable often expands its range which can cause inefficient estimates.

---

Definitions:

Cost Basis of Accounting

An accounting method where expenses and income are recorded when they are incurred or earned, regardless of when the cash transactions occur.

Originally Acquired

Refers to the initial purchase or acquisition of an asset or security at its original purchase price.

Enhancing Qualitative Characteristics

Attributes that increase the usefulness of financial information, including comparability, verifiability, timeliness, and understandability.

Timeliness

Refers to the provision of financial information to users promptly, ensuring relevance for decision-making purposes.