WorksheetsQuant TE4 Test
Total questions: 40
Worksheet time: 1hrs 20mins
Name
Class
Date
1.
In which of the following situations would a non-parametric test of a hypothesis most likely be used?
a)
A. The sample data are ranked according to magnitude.
b)
B. The sample data come from a normally distributed population.
c)
C. The test validity depends on many assumptions about the nature of the population.
2.
If the stated annual interest rate is 9% and the frequency of compounding is daily, the effective annual rate (EAR) is closest to:
a)
A. 9.00%.
b)
B. 9.86%.
c)
C. 9.42%.
3.
The best approach for creating a stratified random sample of a population involves:
a)
A. drawing an equal number of simple random samples from each subpopulation.
b)
B. selecting every kth member of the population until the desired sample size is reached.
c)
C. drawing simple random samples from each subpopulation in sizes proportional to the relative size of each subpopulation.
4.
All else being equal, as the correlation between two assets approaches +1.0, the diversification benefits:
a)
A. decrease
b)
B. stay the same
c)
C. increase.
5.
a)
A. The p-value is the smallest level of significance at which H0 can be rejected.
b)
B. The p-value indicates the probability of making a Type II error.
c)
C. The lower the p-value, the weaker the evidence for rejecting the H0.
6.
A one-tailed hypothesis testing has a p-value for a test statistic of 3%. An analyst would not reject the null hypothesis at a significance level of:
a)
A. 0.01.
b)
B. 0.05.
c)
C. 0.10.
7.
a)
A. 10.89%
b)
B. 10.8%
c)
C. 9.62%
8.
a)
A. f(x)
b)
B. g(x)
c)
C. h(x)
9.
If a stock’s continuously compounded return is normally distributed, then the distribution of the future stock price is best described as being:
a)
A. normal.
b)
B. a Student’s t.
c)
C. lognormal.
10.
A limitation of Monte Carlo simulation is:
a)
A. its failure to do “what if” analysis.
b)
B. that it requires historical records of returns
c)
C. its inability to independently specify cause-and-effect relationships.
11.
If the probability that a portfolio outperforms its benchmark in any quarter is 0.75, the probability that the portfolio outperforms its benchmark in three or fewer quarters over the course of a year is closest to
a)
A. 0.26
b)
B. 0.42
c)
C. 0.68
12.
Which of the following statements about hypothesis testing is correct?
a)
A. The null hypothesis is the condition a researcher hopes to support.
b)
B. The alternative hypothesis is the proposition considered true without conclusive evidence to the contrary.
c)
C. The alternative hypothesis exhausts all potential parameter values not accounted for by the null hypothesis.
13.
For a binomial random variable with five trials, and a probability of success on each trial of 0.50, the distribution will be:
a)
A. skewed
b)
B. uniform
c)
C. symmetric.
14.
Which of the following tests of a hypothesis concerning the population mean is most appropriate?
a)
A. A z-test if the population variance is unknown and the sample is small
b)
B. A z-test if the population is normally distributed with a known variance
c)
C. A t-test if the population is non-normally distributed with unknown variance and a small sample
15.
a)
A. 360
b)
B. 97
c)
C. 42
16.
Two portfolios have unimodal return distributions. Portfolio 1 has a skewness of 0.77, and Portfolio 2 has a skewness of –1.11. Which of the following is correct?
a)
A. For Portfolio 1, the median is less than the mean.
b)
B. For Portfolio 1, the mode is greater than the mean
c)
C. For Portfolio 2, the mean is greater than the median
17.
Which parameter equals zero in a normal distribution?
a)
A. Kurtosis
b)
B. Skewness
c)
C. Standard deviation
18.
Suppose we take a random sample of 30 companies in an industry with 200 companies. We calculate the sample mean of the ratio of cash flow to total debt for the prior year. We find that this ratio is 23 percent. Subsequently, we learn that the population cash flow to total debt ratio (taking account of all 200 companies) is 26 percent. What is the explanation for the discrepancy between the sample mean of 23 percent and the population mean of 26 percent?
a)
A. Sampling error.
b)
B. Bias.
c)
C. A lack of consistency.
19.
a)
A. Reject the null hypothesis.
b)
B. Do not reject the null hypothesis.
c)
C. Not enough information provided to answer.
20.
From an approved list of 25 funds, a portfolio manager wants to rank 4 mutual funds from most recommended to least recommended. Which formula is most appropriate to calculate the number of possible ways the funds could be ranked?
a)
A. Permutation formula
b)
B. Multinomial formula
c)
C. Combination formula
21.
A sports car, purchased for £200,000, is financed for five years at an annual rate of 6% compounded monthly. If the first payment is due in one month, the monthly payment is closest to:
a)
A. £3,847.
b)
B. £3,867.
c)
C. £3,957.
22.
Given a €1,000,000 investment for four years with a stated annual rate of 3% compounded continuously, the difference in its interest earnings compared with the same investment compounded daily is closest to:
a)
A. €1.
b)
B. €6.
c)
C. €455.
23.
When analyzing investment returns, which of the following statements is correct?
a)
A. The geometric mean will exceed the arithmetic mean for a series with non-zero variance.
b)
B. The geometric mean measures an investment’s compound rate of growth over multiple periods.
c)
C. The arithmetic mean accurately estimates an investment’s terminal value over multiple periods
24.
A report on long-term stock returns focused exclusively on all currently publicly traded firms in an industry is most likely susceptible to:
a)
A. look-ahead bias.
b)
B. survivorship bias.
c)
C. intergenerational data mining.
25.
a)
A. null hypothesis is not rejected.
b)
B. alternative hypothesis is statistically confirmed.
c)
C. difference in mean returns is statistically different from zero.
26.
A company has an unsecured line of credit and needs to maintain its EBIT-to-interest coverage ratio greater than 2.0. Its EBIT is estimated to be between $36 million and $48 million, with all values equally likely. If the forecasted interest charge for the year is $20 million, the probability that EBIT/interest will be more than 2.0 is closest to:
a)
A. 61.5%.
b)
B. 33.3%.
c)
C. 66.7%.
27.
A parametric test is most likely preferred to a non-parametric test when:
a)
A. the data are given in ratio or ordinal scale.
b)
B. defined sets of assumptions are given.
c)
C. the population is heavily skewed.
28.
The value of the cumulative distribution function F(x), where x is a particular outcome, for a discrete uniform distribution:
a)
A. sums to 1.
b)
B. lies between 0 and 1.
c)
C. decreases as x increases.
29.
An investment pays €300 annually for five years, with the first payment occurring today. The present value (PV) of the investment discounted at a 4% annual rate is closest to:
a)
A. €1,336.
b)
B. €1,389.
c)
C. €1,625.
30.
a)
A. $36,400.
b)
B. $63,600.
c)
C. $81,600
31.
A client invests €20,000 in a four-year certificate of deposit (CD) that annually pays interest of 3.5%. The annual CD interest payments are automatically reinvested in a separate savings account at a stated annual interest rate of 2% compounded monthly. At maturity, the value of the combined asset is closest to:
a)
A. €21,670.
b)
B. €22,890.
c)
C. €22,950.
32.
A random number between zero and one is generated according to a continuous uniform distribution. What is the probability that the first number generated will have a value of exactly 0.30?
a)
A. 0
b)
B. 0,3
c)
C. 0,7
33.
A chi-square test is most appropriate for tests concerning:
a)
A. a single variance.
b)
B. differences between two population means with variances assumed to be equal.
c)
C. differences between two population means with variances assumed to not be equal.
34.
a)
A. Test 1.
b)
B. Test 2.
c)
C. Test 3.
35.
For tests concerning the differences between two normally distributed population means with equal but unknown variances, which of the following test statistics is the most appropriate?
a)
A. z-test
b)
B. approximate t-test
c)
C. t-test
36.
Which of the following characteristics of an investment study most likely indicates time-period bias?
a)
A. The study is based on a short time-series.
b)
B. Information not available on the test date is used.
c)
C. A structural change occurred prior to the start of the study’s time series.
37.
The nominal risk-free rate is best described as the sum of the real risk-free rate and a premium for
a)
A. maturity.
b)
B. liquidity.
c)
C. expected inflation.
38.
a)
A. 37.50%.
b)
B. 56.25%.
c)
C. 18.75%.
39.
The nominal risk-free rate is best described as the sum of the real risk-free rate and a premium for
a)
A. maturity.
b)
B. liquidity.
c)
C. expected inflation.
40.
A chi-square test is most appropriate for tests concerning:
a)
A. a single variance.
b)
B. differences between two population means with variances assumed to be equal.
c)
C. differences between two population means with variances assumed to not be equal.
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