Explanation:
The log-linear trend model is the preferred method for a data series that exhibits a trend or for which the residuals are predictable. In this example, sales grew at an exponential, or increasing, rate rather than at a steady amount.
(Book 2, Module 22.1, LO 22.a)
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Question 87
A risk manager is analyzing sales data for TUV Corporation, a current equity holding in her portfolio. She observes that sales for TUV have grown at a constant increasing rate over the past 10 years because of the successful introduction of some new products. She anticipates that TUV will continue this pattern of success. Which of the following models is most appropriate in her analysis of sales for TUV Corporation?
A
A log-linear trend model, because the data series exhibits a predictable, exponential growth trend.
B
A linear trend model, because the data series is equally distributed above and below the line and the mean is constant.
C
A log-linear trend model, because the data series can be graphed using a straight, upward-sloping line.
D
A quadratic trend model, because the data series likely exhibits an inverted “U” shape.
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