QUANTITATIVE METHODS

Question 1

Type 1 and type 2 Errors

Answer 1

Type 1 error: reject the null when it’s actually true (false positive)

Type 2 error: keep the null when it’s actually false (false negative)

Question 2

confidence Interval (CL)

Answer 2

A range that Probably contains the true value

CI = X +- Z

Question 3

Agency Problem

Answer 3

Conflict between managors (agents) and shareholders (owners)

Question 4

Working Capital

Answer 4

Current assets - current liabities

Why important: measures liquidity and short term financial heath.

Question 5

Z - Score

Answer 5

Tell how far a nalue is from the mean, in standard deviation

Question 6

Sharpe Ratio

Answer 6

how much extra return you get for the risk you take

Question 7

Geometric Mean

Answer 7

Used for groth rates over time (like yearly Investment returns). it shows the true average return with compounding

Question 8

Arithmetic Mean

Answer 8

Basic Kind of average. add all the numbers divide by how many numbers

Question 9

Future Value (FV)

Answer 9

FV=PV×(1+r)
n

PV: Present Value

r: Interest rate per period

n: Number of periods

Present Value (PV)

Question 10

Probability Rules

Addition Rule:

Answer 10

P(A∪B)=P(A)+P(B)−P(A∩B)

Question 11

Z - Score

Answer 11

How far a number is from the mean.

F: Z= (your value - mean) / STD Deviation

Question 12

Probability Rules

Multiplication Rule:

Answer 12

P(A∩B)=P(A)⋅P(B∣A)

Question 13

Probability Rules

Expected Value (Mean)

Question 14

Variance of a Random Variable

Question 15

Normal Distribution

Answer 15

Bell-shaped, symmetric

68% within 1 SD, 95% within 2 SDs, 99.7% within 3 SDs

Question 16

Z-Score

Answer 16

Z=
σ
X−μ

Question 17

Lognormal Distribution

Answer 17

Used for asset prices

Positively skewed

Cannot be negative

Question 18

Central Limit Theorem

Answer 18

For large samples, the sampling distribution of the mean is approximately normal, even if population isn’t.

Question 19

Standard Error of the Mean

Question 20

Hypothesis Testing
Hypotheses

Answer 20

Null (H₀): No effect or difference

Alternative (H₁): What we want to prove

Question 21

Test Statistic (Z-test or T-test)

Question 22

p-value

Answer 22

The probability of obtaining a test statistic more extreme than the one observed, assuming H₀ is true.

Question 23

Type I vs. Type II Errors

Answer 23

Type Meaning
Type I Rejecting H₀ when it’s true (False Positive)
Type II Failing to reject H₀ when it’s false

Question 24

Technical Analysis Basics

Answer 24

Support Level: Price at which demand prevents decline

Resistance Level: Price at which supply prevents rise

Moving Average: Smooths price data over time

Momentum Indicators: Identify strength of trends

Question 25

Covariance

Question 26

Correlation Coefficient

Question 27

Simple Linear Regression Equation

Answer 27

Y=a+bX+ϵ b (slope): Change in Y for 1 unit change in X R² (coefficient of determination): % of variation explained by model