Quantitative Analysis

Question #1 of 57 Question ID: 496400

Assume in an autoregressive [AR(1)] process that the coefficient for the lagged observation of the variable being estimated is
equal to 0.75. According to the Yule-Walker equation, what should be the second-period autocorrelation?

A) 0.375.
B) 0.75.
C) 0.866.
D) 0.5625.

Question #2 of 57 Question ID: 641295

Which of the following statements best describe a disadvantage of the simulation approach to financial problem solving?

A) In practice, with the use of an initial seed for the start of random draws, it is not possible to replicate
results from previous experiments.

B) If alternate assumptions are made in the data generating process the results may be very similar.
C) The complexity of markets and issues that are examined have also become increasingly complex,
leading to low computation costs.
D) Imprecise results may be present even with a very large number of simulation iterations when the
assumptions of model inputs or the data generating process are unrealistic.

Question #3 of 57 Question ID: 439003

GARCH(1,1) (generalized autoregressive conditional heteroskedastic) models of volatility may be useful for option traders
because they:

A) are used in the Black-Scholes option pricing model.

B) provide efficient estimates of past volatility.

C) are useful in forecasting future volatility

D) are the simplest volatility models to estimate.

Question #4 of 57 Question ID: 438992

A dependent variable is regressed against three independent variables across 25 observations. The regression sum of squares is 119.25,
and the total sum of squares is 294.45. The following are the estimated coefficient values and standard errors of the coefficients.

Coefficient Value Standard error

1 2.43 1.4200

2 3.21 1.5500

3 0.18 0.0818

What is the p-value for the test of the hypothesis that all three of the coefficients are equal to zero?

A) Greater than 0.10.

B) Between 0.05 and 0.10.

C) Between 0.025 and 0.05.

D) lower than 0.025.

Question #5 of 57 Question ID: 438999

A portfolio manager is using an exponentially weighted moving average (EWMA) model to forecast volatility for a particular
market parameter. What is the implication of an EWMA weighting parameter value of 0.84?

A) More information is required to determine the implication.

B) An equal weight is placed on the previous volatility estimate as on the most recent change in
parameter value.
C) A greater weight is placed on the previous volatility estimate than on the most recent change in
parameter value.
D) A greater weight is placed on the most recent change in parameter value than on the previous
volatility estimate.

Question #6 of 57 Question ID: 726927

An analyst is trying to determine whether fund return performance is persistent. The analyst divides funds into three groups
based on whether their return performance was in the top third (group 1), middle third (group 2), or bottom third (group 3) during
the previous year. The manager then creates the following equation: R = b0 + b1D1 + b2D2 + b3D3 + ε, where R is return premium
on the fund (the return minus the return on the S&P 500 benchmark) and Di is equal to 1 if the fund is in group i. Assuming no
other information, this equation will suffer from:

A) heteroskedasticity.
B) serial correlation.
 C) non-normality.
D) multicollinearity.

Question #7 of 57 Question ID: 496394

All of the following statements represent conditions for a time series to be covariance stationary except:

A) the standard deviation of the time series is infinite, but constant over time.

B) the time series volatility around its mean does not change over time.
C) the expected value of the time series is constant over time.

D) the covariance of the time series with leading or lagged values of itself is constant.

Question #8 of 57 Question ID: 438972

63 monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the Wilshire
5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if the return
is from a month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half of the
year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also equals 0.
The following are the estimated coefficient values and standard errors of the coefficients.

Coefficient Value Standard error

Market 1.43000 0.319000

Dummy 1 0.00162 0.000675

Dummy 2 0.00132 0.000733

What is the p-value for a test of the hypothesis that performance in the second half of the year is different than performance in
the first half of the year?

A) Greater than 0.10.

B) Between 0.01 and 0.05.

C) Lower than 0.01.

D) Between 0.05 and 0.10.
Question #9 of 57 Question ID: 438994

When utilizing a proxy for one or more independent variables in a multiple regression model, which of the following errors is most
likely to occur?

A) Serial correlation.
B) Multicollinearity.
C) Model misspecification.
D) Heteroskedasticity.

Question #10 of 57 Question ID: 641293

When conducting a Monte Carlo simulation, the first step is to:

A) compute the present value of each path within the simulation.

B) generate scenarios based on randomly generated inputs drawn from a pre-specified probability
distribution.
C) allow for data analysis related to the properties of the probability distributions of the output variables.

D) use a data generating process to generate random inputs that are assumed to follow a specific
probability distribution.

Question #11 of 57 Question ID: 496393

Which of the following terms is most likely associated with the degree of correlation and interdependency between data points in
a time series?

A) Autocovariance function.
B) Covariance stationary.
C) Autocorrelation function.

D) Autoregression.

Questions #12-13 of 57

You have been asked to forecast the level of operating profit for a proposed new branch of a tire store. This forecast is one component in
forecasting operating profit for the entire company for the next fiscal year. You decide to conduct multiple regression analysis using "branch
store operating profit" as the dependent variable and three independent variables. The three independent variables are "population within 5
miles of the branch," "operating hours per week," and "square footage of the facility." You used data on the company's existing 23 branches
to develop the model (n=23).
 Regression of Operating Profit on Population, Operating Hours, and Square

Footage

Dependent Variable Operating Profit (Y)

Independent Variables Coefficient Estimate t-value

Intercept 103,886 2.740

Population within 5 miles (X1) 4.372 2.133

Operating hours per week (X2) 214.856 0.258

Square footage of facility (X3) 56.767 2.643

R2 0.983

Adjusted R2 0.980

F-Statistic 360.404

Standard error of the model 19,181

Correlation Matrix

Y X1 X2 X3

Y 1.00

X1 0.99 1.00

X2 0.69 0.67 1.00

X3 0.99 0.99 .71 1.00

Degrees of Freedom .20 .10 .05 .02 .01

3 1.638 2.353 3.182 4.541 5.841

19 1.328 1.729 2.093 2.539 2.861

23 1.319 1.714 2.069 2.50 2.807

Question #12 of 57 Question ID: 438978

You want to evaluate the statistical significance of the slope coefficient of an independent variable used in this regression model. For 95
percent confidence, you should compare the t-statistic to the critical value from a t-table using:

A) 24 degrees of freedom and 0.05 level of significance for a one-tailed test.

B) 19 degrees of freedom and 0.05 level of significance for a one-tailed test.

C) 24 degrees of freedom and 0.05 level of significance for a two-tailed test.

D) 19 degrees of freedom and 0.05 level of significance for a two-tailed test.

Question #13 of 57 Question ID: 438979

The probability of finding a value of t for variable X1 that is as large or larger than |2.133| when the null hypothesis is true is:

A) between 5% and 10%.

B) between 2% and 5%.

C) between 10% and 20%.

D) between 1% and 2%.

Question #14 of 57 Question ID: 438974

David Black wants to test whether the estimated beta in a market model is equal to one. He collected a sample of 60 monthly returns on a
stock and estimated the regression of the stock's returns against those of the market. The estimated beta was 1.1, and the standard error
of the coefficient is equal to 0.4. What should Black conclude regarding the beta if he uses a 5% level of significance? The null hypothesis
that beta is:

A) not equal to one cannot be rejected.

B) equal to one cannot be rejected.

C) equal to one is rejected.

D) equal to one cannot be rejected or accepted.

Question #15 of 57 Question ID: 438980

An analyst is investigating the hypothesis that the beta of a fund is equal to one. The analyst takes 60 monthly returns for the
fund and regresses them against the Wilshire 5000. The test statistic is 1.97 and the p-value is 0.05. Which of the following is
CORRECT?

A) If beta is equal to 1, the likelihood that the absolute value of the test statistic would be greater than or
equal to 1.97 is 5%.
B) For a sample of 100 beta values, the expected number of times beta would be equal to 1 is less than
or equal to 5%.
C) If beta is equal to 1, the likelihood that the absolute value of the test statistic is equal to 1.97 is less
than or equal to 5%.
D) The proportion of occurrences when the absolute value of the test statistic will be higher when beta
is equal to 1 than when beta is not equal to 1 is less than or equal to 5%.
Question #16 of 57 Question ID: 726928

A fund has had three different managers during the past 10 years. An analyst wants to measure whether any of these changes in
managers has had an impact on performance. The analyst also wants to simultaneously measure the impact of risk on the fund's
return. Assume R is the return on the fund, and M is the return on a market index. Which of the following regression equations
can appropriately measure the desired impacts?

A) R = a + bM + cD + ε, where D = 1 if the return is from the first manager, 2 if the return is from the
second manager, and 3 if the return is from the third manager.

B) R = a + bM + c1D1 + c2D2 + c3D3 + ε, where D1 = 1 if the return is from the first manager, and D2 = 1
if the return is from the second manager, and D3 = 1 is the return is from the third manager.
C) The desired impact cannot be measured.

D) R = a + bM + c1D1 + c2D2 + ε, where D1 = 1 if the return is from the first manager, and D2 = 1 if the
return is from the third manager.

Question #17 of 57 Question ID: 726926

Consider the following model of earnings (EPS) regressed against dummy variables for the quarters:

EPSt = β0 + β1Q1,t + β2Q2,t + β3Q3,t

where:
EPSt is a quarterly observation of earnings per share
D1,t takes on a value of 1 if period t is the second quarter, 0 otherwise
D2,t takes on a value of 1 if period t is the third quarter, 0 otherwise
D3,t takes on a value of 1 if period t is the fourth quarter, 0 otherwise

Which of the following statements regarding this model is most accurate? The:

A) change in EPS for the fourth quarter is estimated to be β1 + β2 + β3.

B) EPS for the first quarter is represented by the residual.

C) coefficient on each dummy variable tells us about the difference in earnings per share between the
respective quarter and the one left out (first quarter in this case).
D) significance of the coefficients cannot be interpreted in the case of dummy variables.

Question #18 of 57 Question ID: 726924

If a forecaster is using a time series model and notices periodic spikes in autocorrelations as they gradually decay, this is most
likely a sign of:
 A) a linear trend in the data set.

B) conditional heteroskedasticity.
C) a structural shift in the time series.

D) seasonality in the data.

Question #19 of 57 Question ID: 496387

A Gaussian copula maps the marginal distribution of each variable to the:

A) bivariate Student's t-distribution.

B) binomial distribution.
C) F-distribution.

D) standard normal distribution

Question #20 of 57 Question ID: 496386

Which of the following statements is correct regarding the characteristics of copula functions?

A) The copula mapping process is typically done on a quartile-by-quartile basis.

B) A copula preserves the original marginal distributions while defining a correlation between them.
C) A copula creates two individual marginal distributions.

D) A copula maps marginal distributions to a unique unknown distribution.

Question #21 of 57 Question ID: 496401

If an analyst notices that autocorrelations decay gradually over time, which time series process should the analyst most likely rule
out when attempting to forecast data?

A) General pth order autoregressive [AR(p)] process.

B) Moving average [MA(1)] process.

C) Autoregressive moving average (ARMA) process.

D) First-order autoregressive [AR(1)] process.

Questions #22-27 of 57
Autumn Voiku is attempting to forecast sales for Brookfield Farms based on a multiple regression model. Voiku has constructed
the following model:

sales = b0 + (b1 × CPI) + (b2 × IP) + (b3 × GDP) + εt

Where:
sales = $ change in sales (in 000's)
CPI = change in the consumer price index
IP = change in industrial production (millions)
GDP = change in GDP (millions)
All changes in variables are in percentage terms.

Voiku uses monthly data from the previous 180 months of sales data and for the independent variables. The model estimates
(with coefficient standard errors in parentheses) are:

sales = 10.2 + (4.6 × CPI) + (5.2 × IP) + (11.7 × GDP)

(5.4) (3.5) (5.9) (6.8)

The sum of squared errors is 140.3 and the total sum of squares is 368.7.

Voiku calculates the unadjusted R2, the adjusted R2, and the standard error of estimate to be 0.592, 0.597, and 0.910,
respectively.

Voiku is concerned that one or more of the assumptions underlying multiple regression has been violated in her analysis. In a
conversation with Dave Grimbles, CFA, a colleague who is considered by many in the firm to be a quant specialist. Voiku says, "It
is my understanding that there are five assumptions of a multiple regression model:"

Assumption 1: There is a linear relationship between the dependent and independent

variables.
Assumption 2: The independent variables are not random, and there is no correlation between
any two of the independent variables.
Assumption 3: The residual term is normally distributed with an expected value of zero.
Assumption 4: The residuals are serially correlated.
Assumption 5: The variance of the residuals is constant.

Grimbles agrees with Miller's assessment of the assumptions of multiple regression.

Voiku tests and fails to reject each of the following four null hypotheses at the 99% confidence interval:

Hypothesis 1: The coefficient on GDP is negative.

Hypothesis 2: The intercept term is equal to -4.
Hypothesis 3: A 2.6% increase in the CPI will result in an increase in sales of more than 12.0%.
Hypothesis 4: A 1% increase in industrial production will result in a 1% decrease in sales.

Figure 1: Partial table of the Student's t-distribution (One-tailed probabilities)

df p = 0.10 p = 0.05 p = 0.025 p = 0.01 p = 0.005

170 1.287 1.654 1.974 2.348 2.605

 176 1.286 1.654 1.974 2.348 2.604

180 1.286 1.653 1.973 2.347 2.603

Figure 2: Partial F-Table critical values for right-hand tail area equal to 0.05

df1 = 1 df1 = 3 df1 = 5

df2 = 170 3.90 2.66 2.27

df2 = 176 3.89 2.66 2.27

df2 = 180 3.89 2.65 2.26

Figure 3: Partial F-Table critical values for right-hand tail area equal to 0.025

df1 = 1 df1 = 3 df1 = 5

df2 = 170 5.11 3.19 2.64

df2 = 176 5.11 3.19 2.64

df2 = 180 5.11 3.19 2.64

Question #22 of 57 Question ID: 438986

Concerning the assumptions of multiple regression, Grimbles is:

A) correct to agree with Voiku's statement of the assumptions.

B) incorrect to agree with Voiku's list of assumptions because one of the assumptions is stated
incorrectly.
C) incorrect to agree with Voiku's list of assumptions because two of the assumptions are stated
incorrectly.

D) incorrect to agree with Voiku's list of assumptions because three of the assumptions are stated
incorrectly.

Question #23 of 57 Question ID: 599862

For which of the four hypotheses did Voiku incorrectly fail to reject the null, based on the data given in the problem?

A) Hypothesis 2.

B) Hypothesis 3.
C) Hypothesis 4.

D) Hypothesis 1.

Question #24 of 57 Question ID: 438988

The most appropriate decision with regard to the F-statistic for testing the null hypothesis that all of the independent variables are
simultaneously equal to zero at the 5 percent significance level is to:

A) fail to reject the null hypothesis because the F-statistic is smaller than the critical F-value of 3.19.
 B) reject the null hypothesis because the F-statistic is larger than the critical F-value of 3.19.
C) reject the null hypothesis because the F-statistic is larger than the critical F-value of 2.66.

D) fail to reject the null hypothesis because the F-statistic is smaller than the critical F-value of 2.66.

Question #25 of 57 Question ID: 438989

Regarding Voiku's calculations of R2 and the standard error of estimate, she is:

A) incorrect in her calculation of both the unadjusted R2 and the standard error of estimate.
B) correct in her calculation of the unadjusted R2 but incorrect in her calculation of the standard error of
estimate.
C) incorrect in her calculation of the unadjusted R2 but correct in her calculation of the standard error of
estimate.
D) correct in her calculation of both the unadjusted R2 and the standard error of estimate.

Question #26 of 57 Question ID: 459978

The multiple regression, as specified, most likely suffers from:

A) multicollinearity.

B) serial correlation of the error terms.

C) heteroskedasticity.

D) omitted variables.

Question #27 of 57 Question ID: 438991

A 90 percent confidence interval for the coefficient on GDP is:

A) -1.9 to 19.6.

B) -1.5 to 20.0.
C) -4.4 to 20.8.

D) 0.5 to 22.9.

Question #28 of 57 Question ID: 439000

You estimate the following GARCH model:

σ2n = 0.04 + 0.30μ2t-1 + 0.50σ2n-1

If the most recent volatility estimate and error term are 0.15 and 0.02, respectively, the long-run average variance is closest to:

A) 0.23.
 B) 0.16.
C) 0.04.

D) 0.20.

Question #29 of 57 Question ID: 439001

Consider the following four GARCH equations:

Equation 1: σ2n = 0.83 + 0.05μ2n-1 + 0.93σ2n-1
Equation 2: σ2n = 0.06 + 0.04μ2n-1 + 0.95σ2n-1
Equation 3: σ2n = 0.60 + 0.10μ2n-1 + 0.94σ2n-1
Equation 4: σ2n = 0.03 + 0.03μ2n-1 + 0.93σ2n-1

Which of the following statements regarding these equations is (are) CORRECT?

I. Equation 1 is a stationary model.

II. Equation 2 shows no mean reversion

III. Volatility will revert to a long run mean level faster with Equation 1 than it will for Equation 4.
IV. Volatility will revert to a long run mean level faster with Equation 3 than it will for Equation 2.

A) II and III only.

B) II and IV only.

C) I only.

D) III only.

Question #30 of 57 Question ID: 439004

Traditional covariance calculations assume that all past observations receive the same weighting. One alternative is to apply differential
weightings to past observations and create GARCH-type models to take into account the time variability of covariance. Which of the
following statements is true regarding these alternative covariance calculations?

I. If one uses a particular weighting scheme for variance calculations, one should use the same weighting scheme for the covariance
calculations.

II. If one uses a particular weighting scheme variance calculations, one should use a different weighting scheme for the covariance
calculations.

A) Both I and II.

B) Neither I nor II.

 C) I only.
D) II only.

Question #31 of 57 Question ID: 641294

Ann Tessa, FRM, is choosing a probability distribution for a simulation model. She decides to examine probability distributions of
historical returns and assumes future returns will follow that same distribution. Which simulation technique is Tessa most likely
using when choosing a probability distribution?

A) Parameter estimate technique.

B) Best fit technique.

C) Subjective guess technique.

D) Bootstrapping technique.

Question #32 of 57 Question ID: 496385

Regarding the consistency condition to covariance, a variance-covariance matrix is positive-semidefinite if:

A) it is internally consistent.
B) one of its vectors can be transposed.

C) it is bivariate normal.

D) it is externally dependent.

Question #33 of 57 Question ID: 438976

A dependent variable is regressed against three independent variables across 25 observations. The regression sum of squares
is 119.25, and the total sum of squares is 294.45. The following are the estimated coefficient values and standard errors of the
coefficients.

Coefficient Value Standard error

1 2.43 1.4200

2 3.21 1.5500

3 0.18 0.0818

For which of the coefficients can the hypothesis that they are equal to zero be rejected at the 0.05 level of significance?

A) 2 and 3 only.
 B) 1, 2, and 3.

C) 1 and 2 only.

D) 3 only.

Question #34 of 57 Question ID: 496384

Assume an analyst uses the EWMA model with λ = 0.80 to update correlation and covariance rates. The correlation estimate for
two variables X and Y on day n -1 is 0.5. In addition, the estimated standard deviations on day n - 1 for variables X and Y are
2.5% and 3%, respectively. Also, the percentage change on day n - 1 for variables X and Y are 2% and 1%, respectively. What is
the updated estimate of the covariance rate between X and Y on day n?

A) 0.00004.
B) 0.00023.

C) 0.00053.

D) 0.00034.

Question #35 of 57 Question ID: 496395

Regarding a white noise process, which of the following characteristics should not be included in the dynamic structure of white
noise?

A) Both conditional and unconditional means and variances are the same for an independent white
noise process.

B) Events in a white noise process exhibit no correlation between the past and present.
C) The process must be serially independent and normally distributed.

D) The unconditional mean and variance must be constant for any covariance stationary process.

Question #36 of 57 Question ID: 438973

Seventy-two monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the
Wilshire 5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if
the return is from a month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half
of the year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also
equals 0. The following are the estimated coefficient values and standard errors of the coefficients.

Coefficient Value Standard error

Market 1.43000 0.319000
Dummy 1 0.00162 0.000675
 Dummy 2 −0.00132 0.000733

What is the p-value for a test of the hypothesis that the new manager outperformed the old manager?

A) Lower than 0.01.

B) Greater than 0.10.

C) Between 0.05 and 0.10.

D) Between 0.01 and 0.05.

Question #37 of 57 Question ID: 496403

Regarding the different ways to choose a probability distribution for simulation models, which of the following statements defines
the bootstrapping technique?

A) Constructs a future probability distribution based on a subjective guess of how an input variable will
behave in the future.

B) Examines probability distributions of historical returns and assumes future returns will follow the
same distribution.
C) Uses parameters to define the shape of a specific probability distribution for future input variables.

D) Finds a probability distribution that best fits historical data.

Question #38 of 57 Question ID: 496398

Regarding the properties of a first-order moving average [MA(1)] process, which of the following statements is most likely
correct?

A) For any value beyond the first lagged error term, the autocorrelation will be one in an MA(1) process.

B) An MA(1) process is a nonlinear regression of the current values of a time series against the
previous unobserved error terms.
C) The MA(1) process has a mean of zero and a dynamic variance.

D) The MA(1) process is considered to be first-order because it only has one lagged error term.

Question #39 of 57 Question ID: 496388

Assume that a sample of 100 observations has a sum of squared residuals (SSR) of 350 and an explained sum of squares of
500. What is the mean squared error (MSE)?

A) 1.5.
 B) 5.0.
C) 3.5.

D) 0.20.

Question #40 of 57 Question ID: 496402

If a forecaster is using a time series model and notices periodic spikes in autocorrelations as they gradually decay, this is most
likely a sign of:

A) a structural shift in the time series.

B) first differencing lag operators.

C) seasonality in the data.

D) autoregressive conditional heteroskedasticity (ARCH).

Question #41 of 57 Question ID: 507544

Regarding the bias associated with the mean squared error (MSE) measure, which of the following statements is correct?

A) The use of in-sample MSE to estimate out-of-sample MSE is very effective because in-sample MSE
cannot increase when more variables are included in the forecasting model.

B) The unbiased MSE estimate will rank models differently than the adjusted R2 measure.

C) MSE will have an upward bias when predicting out-of-sample error variance.
D) One way to reduce the bias associated with MSE is to impose a penalty on the degrees of freedom.

Question #42 of 57 Question ID: 496405

Regarding the relationship between the accuracy of a simulation model and the number of scenarios run in a simulation, which of
the following statements is correct when increasing the number of scenarios from 1,000 to 4,000?

A) The confidence interval will be reduced by 50%.

B) The confidence interval will increase by 400%.

C) The confidence interval will be reduced by 75%.

D) The confidence interval will double.

Question #43 of 57 Question ID: 496390

Assume that a sample of 500 observations has degrees of freedom of 25. What is the penalty factor associated with the Schwarz
information criterion (SIC)?

A) 1.105.

B) 1.053.

C) 1.364.
D) 1.284.

Question #44 of 57 Question ID: 438997

Which of the following statements is incorrect regarding the use of historical data and weighting schemes to estimate volatility?

A) The volatility estimate from an autoregressive conditional heteroskedasticity model is a function of a

short-run variance level and a series of squared variance observations.
B) Straightforward volatility estimation approaches weight each observation equally in that more distant
past returns have the same influence on estimated volatility as observations that are more recent.

C) An example of a volatility estimation weighting scheme is to assume a long-run variance level in

addition to weighted squared return observations.

D) If an analyst's goal is to estimate the current level of volatility, she may want to weight recent data
more heavily.

Question #45 of 57 Question ID: 496397

Zack Snyder is comparing and contrasting the Box-Pierce Q-statistic with the Ljung-Box Q-statistic. Which of the following
statements should he identify as being incorrect regarding these Q-statistics?
I. The Box-Pierce Q-statistic reflects the absolute magnitudes of the correlations, because it sums the squared
autocorrelations.
II. For large sample sizes, weights for both the Box-Pierce Q-statistic and the Ljung-Box Q-statistic are roughly equal.

A) I only.

B) II only.
C) Neither I nor II.

D) Both I and II.

Question #46 of 57 Question ID: 438975

Seventy-two monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the
Wilshire 5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if
the return is from a month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half
of the year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also
equals zero. The following are the estimated coefficient values and standard errors of the coefficients.

Coefficient Value Standard error

Market 1.43000 0.319000

Dummy 1 0.00162 0.000675

Dummy 2 −0.00132 0.000733

What is the p-value for a test of the hypothesis that the beta of the fund is greater than 1?

A) Between 0.05 and 0.10.

B) Between 0.01 and 0.05.

C) Greater than 0.10.

D) Lower than 0.01.

Question #47 of 57 Question ID: 496396

In the context of Wold's representation theorem, what is the common terminology used to represent the one-step-ahead
forecasted error terms?

A) Innovations.
B) Information sets.

C) Rational distributed lags.

D) Rational Polynomials.

Question #48 of 57 Question ID: 496399

When examining the properties of a general finite-order process of order q [MA(q)], which of the following statements is correct
when comparing the MA(q) process to the MA(1) process?
I. Both the MA(1) and MA(q) processes exhibits autocorrelation cutoff after the first lagged error term.
II. The MA(q) process is a subset of the first-order moving average [MA(1)].

A) II only.

B) Neither I nor II.

C) I only.
D) Both I and II.
Question #49 of 57 Question ID: 438971

Consider the following estimated regression equation, with standard errors of the coefficients as indicated:

Salesi = 10.0 + 1.25 R&Di + 1.0 ADVi - 2.0 COMPi + 8.0 CAPi

where the standard error for R&D is 0.45, the standard error for ADV is 2.2, the standard error for COMP 0.63, and the standard error

for CAP is 2.5.

The equation was estimated over 40 companies. Using a 5 percent level of significance, what are the hypotheses and the calculated test
statistic to test whether the slope on R&D is different from 1.0?

A) H0: bR&D = 1 versus Ha: bR&D≠ 1; t = 0.556.

B) H0: bR&D ≠ 1 versus Ha: bR&D = 1; t = 2.778.

C) H0: bR&D = 1 versus Ha: bR&D≠1; t = 2.778.

D) H0: bR&D ≠ 1 versus Ha: bR&D = 1; t = 0.556.

Question #50 of 57 Question ID: 444883

A high Q-statistic describes a fund with:

A) large negative autocorrelation, only.

B) large positive autocorrelation or large negative autocorrelation.

C) large positive autocorrelation, only.

D) no autocorrelation.

Question #51 of 57 Question ID: 438993

Consider the following analysis of variance (ANOVA) table:

Source Sum of squares Degrees of freedom Mean square

Regression 20 1 20
Error 80 40 2
Total 100 41

The F-statistic for the test of the fit of the model is closest to:
 A) 0.10.

B) 10.00.

C) 0.25.

D) 0.20.

Question #52 of 57 Question ID: 496391

When applying model selection criteria, which of the following metrics have the lowest penalty factor as the degrees of freedom
to total sample size increases?

A) Schwarz information criterion.

B) Akaike information criterion.
C) Unbiased mean squared error.
D) Information ratio criterion.

Question #53 of 57 Question ID: 726925

Which of the following sources would an analyst modeling sales of Christmas trees most likely incorporate into a forecasting
model that uses dummy variables?

A) stochastic seasonality.
B) seasonal adjustments.
C) trading-day variation.
D) deterministic seasonality.

Question #54 of 57 Question ID: 496392

Regarding the conditions for model selection criteria to demonstrate consistency, which of the following statements is true?
I. The most consistent selection criteria with the greatest penalty factor for degrees of freedom is unbiased mean squared error.
II. If we consider the fact that the true model may be much more complicated than the models under consideration, then the
Akaike information criterion (AIC) measure should be examined.

A) Both I and II.

B) I only.

C) Neither I nor II.

 D) II only.

Question #55 of 57 Question ID: 496383

Regarding the comparison between correlation and dependence, which of the following statements is correct? A correlation of
zero between two variables:
I. does not imply that there is no dependence between the two variables.
II. suggests that the value of one variable must have a linear relationship with the other variable.

A) Both I and II.

B) II only.
C) Neither I nor II.
D) I only.

Questions #56-57 of 57

In a recent analysis of salaries (in $1,000) of financial analysts, a regression of salaries on education, experience, and gender is
run. Gender equals one for men and zero for women. The regression results from a sample of 230 financial analysts are
presented below, with t-statistics in parenthesis.

Salaries = 34.98 + 1.2 Education + 0.5 Experience + 6.3 Gender

(29.11) (8.93) (2.98) (1.58)

Question #56 of 57 Question ID: 438982

What is the expected salary (in $1,000) of a woman with 16 years of education and 10 years of experience?

A) 65.48.

B) 61.28.

C) 59.18.

D) 54.98.

Question #57 of 57 Question ID: 438983

Holding everything else constant, do men get paid more than women? Use a 5% level of significance. No, since the t-value:
A) exceeds the critical value of 1.96.

B) exceeds the critical value of 1.65.

C) does not exceed the critical value of 1.96.

D) does not exceed the critical value of 1.65.