MS Finance Skills Assessment-Quantitative Methods

Quantitative Methods

Congratulations on your admission to the MSF program! As you prepare to begin the program, you will use the information in this survey/quiz to help evaluate your knowledge of the subject matter. This quiz should help you to determine your level of knowledge so that you may better choose your courses.

If you have any questions about your score, please contact Karla Lucht, msf-advising@business.illinois.edu

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An analyst computed descriptive statistics of a stock's returns. Skew is negative and kurtosis is 5. Which of the following statements is true?

The stock return is normally distributed.

Kurtosis implies that there are more extreme returns than normal distribution.

Skew indicates that the stock return distribution is symmetric.

There are more negative returns than positive returns but less than normal distribution.

Compute the variance of Y.

Var(X) = 10

Y = 10 + 2 × X

Compute the expected value of Y.

E(X) = 5

Y = 5 + 3 × X

Which of the following is NOT correct about log-normal distribution? Assume y = exp(x).

Log-normal distribution is not symmetric.

The mean and the median of a log-normal distribution are different.

The mean value of y is exp⁡(μ), where μ is the mean of x.

If x is log normally distributed, then exp(x) is normally distributed.

An analyst wants to evaluate the relationship between the two variables, x and y: y_i=a+b⋅x_i+e_i. The analyst computed the following stats. Compute the regression coefficient (b).

μ_x=5,μ_y=10

cov(x,y)=3,var(x)=2,var(y)=1

1.0

1.5

2.0

3.0

An analyst wants to evaluate the relationship between the market return (r_m) and stock return y_i=a+b×x_i+e_i. The analyst computed the following stats. Compute "a".

μ_x=10,μ_y=60,b=5

-10

An analyst performed a simple linear regression to explain a stock's risk premium with the market risk premium. Based on the results, select a statement that is LEAST appropriate.

Intercept is not significant.

Market risk premium is a significant parameter.

The regression does not explain about 81% of the stock's risk premium.

The correlation between the market and stock returns is about 0.9.

Additional instructions for the previous question.

If the chosen significance level is α = 0.05, then

there is a 5% probability of rejecting a true null hypothesis

there is a 5% probability of accepting a true null hypothesis

there is a 5% probability of rejecting a false null hypothesis

there is a 5% probability of accepting a false null hypothesis

None of these

Which of the following statements is the least accurate concerning correlation analysis?

Correlation does not imply causation.

The correlation coefficient captures only a linear relationship.

The correlation coefficient may not be a reliable measure when outliers are present in one or both of the variables.

The correlation coefficient describes both the direction and strength of the relationship between two variables only if the two variables have the same units of measurement.

Simple linear regression analysis differs from multiple regression analysis in that

simple linear regression uses only one explanatory variable

the coefficient of correlation is meaningless in simple linear regression

goodness-of-fit measures cannot be calculated with simple linear regression

the coefficient of determination is always higher in simple linear regression

None of these

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