May 26'23
Exercise
Using the following scree plot, determine the minimum number of principal components that are needed to explain at least 80% of the variance of the original dataset.
- One
- Two
- Three
- Four
- It cannot be determined from the information given.
Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
May 26'23
Key: B
The first PC explains about 62% of the variance. The second PC explains about 23% of the variance. Combined they explain about 85% of the variance, and hence two PCs are sufficient.
Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.