📈 CFA Exam Prep

Multicollinearity in regression analysis is a problem because:

A It improves accuracy
B Correlated independent variables inflate standard errors and make coefficient estimates unreliable
C It reduces R-squared
D It eliminates variables

✓ Correct Answer: Option B

Multicollinearity: highly correlated independent variables → unreliable coefficients, inflated standard errors, unreliable t-tests.

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