You are investigating the relationship between weather and stock market performance. To do this,
you pick 100 stock market locations all over the world. For each location, you collect yesterday's
mean temperature and humidity and yesterday's local index return. Performing a regression analysis
on this data is an example of…
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Correct Answer:
D
Q: 2
Consider a binomial lattice where a security price S moves up by a factor u with probability p, or
down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?
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Correct Answer:
D
Q: 3
Which of the following can be used to evaluate a regression model?
(i) Magnitude of R2
(ii) Magnitude of TSS (total sum of squares)
(iii) Tests for statistical significance
(iv) Sign and magnitude of each regression parameter
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Correct Answer:
C
Q: 4
Find the first-order Taylor approximation p(x) for the function:
at the point .
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Correct Answer:
B
Q: 5
Which of the following properties is exhibited by multiplication, but not by addition?
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Correct Answer:
C
Q: 6
Exploring a regression model for values of the independent variable that have not been observed is
most accurately described as…
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Correct Answer:
D
Q: 7
What can be said about observations of random variables that are i.i.d. a normally distributed?
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Correct Answer:
C
Q: 8
Maximum likelihood estimation is a method for:
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Correct Answer:
A
Q: 9
I have $5m to invest in two stocks: 75% of my capital is invested in stock 1 which has price 100 and
the rest is invested in stock 2, which has price 125. If the price of stock 1 falls to 90 and the price of
stock 2 rises to 150, what is the return on my portfolio?
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Correct Answer:
A
Q: 10
Every covariance matrix must be positive semi-definite. If it were not then:
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Correct Answer:
D
Q: 11
For a quadratic equation, which of the following is FALSE?
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Correct Answer:
C
Q: 12
Let a, b and c be real numbers. Which of the following statements is true?
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Correct Answer:
C
Q: 13
Solve the simultaneous linear equations: x + 2y - 2 = 0 and y - 3x = 8
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Correct Answer:
B
Q: 14
Which of the following is consistent with the definition of a Type I error?
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Correct Answer:
B
Q: 15
If a random variable X has a normal distribution with mean zero and variance 4, approximately what
proportion of realizations of X should lie between -4 and +4?
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Correct Answer:
C
Q: 16
Over four consecutive years fund X returns 1%, 5%, -3%, 8%. What is the average growth rate of fund
X over this period?
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Correct Answer:
A
Q: 17
What is the simplest form of this expression: log2(165/2)
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Correct Answer:
A
Q: 18
Identify the type and common element (that is, common ratio or common difference) of the
following sequence: 6, 12, 24
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Correct Answer:
C
Q: 19
In a multiple linear regression, the significance of R2 can be tested using which distribution?
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Correct Answer:
C
Q: 20
The correlation between two asset returns is 0.5. What is the largest eigenvalue of their correlation
matrix?
