Society of Actuaries (SOA) PA Practice Exam

Which question is important to consider while reading a project statement?

1. Are all predictor variables continuous?

2. What is the target variable's type?

3. Is the project interested in simple models only?

4. What is the maximum count of observations?

The correct answer is: What is the target variable's type?

Considering the type of the target variable is essential when reading a project statement because it directly influences the modeling approach and techniques that you will utilize. Different types of target variables—whether they are binary, categorical, or continuous—dictate the choice of algorithms and evaluation metrics. For instance, if the target variable is binary, classification algorithms would be appropriate, whereas a continuous target variable would steer you toward regression analyses. Recognizing this upfront helps ensure that the entire project aligns with the appropriate statistical methodology. The other options, while they may seem relevant, do not address the fundamental aspect of the project as directly as the type of target variable does. Understanding whether predictor variables are continuous can be informative but doesn’t influence the choice of model as directly as the target variable. The interest in simple models may limit the scope but is contingent on what type of problem you are solving. Similarly, knowing the maximum count of observations is more of a logistical concern, important later in model training, but not as critical as understanding the characteristics of the target variable itself.