Society of Actuaries (SOA) PA Practice Exam

Which function is used to convert a continuous variable into a factor variable based on specified buckets?

1. cut

2. factor

3. as.factor

4. dummyVars

The correct answer is: cut

The function that is used to convert a continuous variable into a factor variable based on specified buckets is the cut function. This function takes a numeric vector and divides it into intervals or "bins," allowing you to categorize continuous data into discrete groups. When you apply the cut function, you specify breaks (the points at which the data is divided), and it assigns factor levels to the data based on which interval each value falls into. This is particularly useful in statistical analysis and data visualization, where you may want to analyze trends or differences across groups that are defined by ranges of a continuous variable. In contrast, the other options serve different purposes. The factor function is used to create a factor variable from a vector of values but does not inherently create categories from continuous data. Similarly, as.factor is a base R function that converts an input into a factor but does not define the intervals for a continuous variable on its own. DummyVars is utilized for creating dummy variables for categorical encoding, primarily in the context of modeling and is not intended for segmenting continuous data into factor levels.