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Chartered Financial Analyst Level 1

Chartered Financial Analyst Level 1

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Which of the following scenarios necessitates a data transformation to apply a simple linear regression model?

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Explanation:

Option C is correct because a non-linear relationship between the independent and dependent variables can often be linearized through transformation, enabling the use of simple linear regression. Options A and B are incorrect: for A, normality is required for residuals, not the variables themselves; for B, uncorrelated pairs of observations are an assumption of simple linear regression, so no transformation is needed.

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