Quantitive Methods

Question 1

What type of data involves collection or generation of data with specific task in mind?

Answer 1

Primary data

Question 2

What type of data is collected for distribution and use by other interested parties?

Answer 2

Secondary data

Question 3

What is defined as all members of a well defined group?

Answer 3

Population

Question 4

What is a subset of a population?

Answer 4

Sample

Question 5

If we wanted to achieve deeper understanding of population who would we collect from?

Answer 5

A subset of population.

Question 6

What type of data can only take a finite number of different values and can be presented visually in pie or bar charts?

Answer 6

Discrete data

Question 7

What type of data can take any value in an interval of a real line and can be presented visually in a histogram?

Answer 7

Continuous data

Question 8

What type of graph involves grouping data in intervals and representing the frequency of occurrence of that interval by area of a bar?

Answer 8

Histogram

Question 9

What graph plots pairs of values of two related variables on the same graph?

Answer 9

Scatter diagram

Question 10

What statistics describe in summary essential features of a dataset and include measures of central tendency and measures of dispersion?

Answer 10

Descriptive statistics

Question 11

If data are distributed such that the mode is less than the median which is less than the mean the distribution of data has what kind of skew?

Answer 11

Positive skew

Question 12

If data are distributed such that the mean is less than the median which is less than the mode the distribution of data has what kind of skew?

Answer 12

Negative skew

Question 13

What is a list of all possible outcomes of a variable along with relative frequency of occurrence? N

Answer 13

Probability distribution

Question 14

What will all probabilities sum up to?

Answer 14

Unity because at least one outcome must occur when an experiment is conducted

Question 15

What type of distribution occurs as a reasonable description for the outcomes of many naturally occurring phenomena?

Answer 15

Normal distribution

Question 16

What is the special feature of normal distribution?

Answer 16

Median, mode and mean are identical and shape is perfectly symmetrical about this central point.

Question 17

Why is normal distribution is important for testing hypotheses about key numbers or behaviours in finance?

Answer 17

Allows question whether observed numbers such as equity risk premium for one country over a period of time are consistent with particular hypothesised number.

Question 18

What can we do with the hypothesised number?

Answer 18

Make probability statements about likelihood of particular sample number occurring. This acts as a check on reliability or credibility of theories.

Question 19

How can we summarise a linear relationship between two variables?

Answer 19

By using bivariate linear regression in which one of the variables is dependent and may be estimated from other independent variables.

Question 20

How do we choose the intercept and slope coefficients?

Answer 20

Using ordinary least squares and measure the goodness fit by the coefficient of determination.

Question 21

What can we use to extrapolating or forecasting values of dependent variable?

Answer 21

Using linear regression.

Question 22

What is involved to take value of 100 during selected base period?

Answer 22

Rescaling a variable

Question 23

What does an index number always reflect?

Answer 23

The percentage change in variable relative to base year.

Question 24

How do you rebase a series?

Answer 24

Index number in particular year is divided by index number in the new base and multiplied by 100

Question 25

How do you calculate a simple arithmetic price index?

Answer 25

Add prices of relevant constituents in a year and divide by the sum prices of the of constituents at the chosen year base

Question 26

How do you calculate geometric index?

Answer 26

Obtaining the product prices of constituents in a year and dividing by product of constituents in a base year and then talking the nth root where n is the number of constituents in the index.

Question 27

What are the characteristics of a geometric index?

Answer 27

Always equal to or less than an equivalent simple arithmetic index. Also less sensitive to large changes in price of a constituent element compared to equivalent simple arithmetic index.

Question 28

In a geometric index what happens if one of the prices of a constituent falls to 0?

Answer 28

The geometric index will be 0 for that year

Question 29

How can you distinguish between equally weighted and market value weighted price indices?

Answer 29

Equally weighted indices gives more weight to pair changes of assets that have low market cap

Question 30

Why are financial market indices important?

Answer 30

They provide a benchmark against which performance of investment funds may be measured by. They facilitate easy comparison between different asset classes and in some cases have become underlining security on which derivative contract based on

Question 31

What type of index is FT30 index?

Answer 31

Equally weighted geometric index

Question 32

What indices are market weighted arithmetic?

Answer 32

FTSE 100, FTSE 250, FTSE All World, CAC40, DAX

Question 33

What type of index is Dow Jones Industrial Average?

Answer 33

Unweighted simple aggregation of 30 largest US stocks.

Question 34

What type of index is S&P 500?

Answer 34

Market weighted average.

Question 35

How do bond Indias measure total returns?

Answer 35

Coupons, investment income, price changes measure total return.

Question 36

How to distinguish between simple and compound interest?

Answer 36

Compound interest involves interest on interest.

Question 37

What it involved in calculating annual percentage return?

Answer 37

Involves annualising a measure of return usually quoted on monthly, quarterly semiannual basis by compounding.

Question 38

What do we use concept of present value for?

Answer 38

To translate future cash payments into values in the present.

Question 39

How is present value obtained?

Answer 39

By discounting future cash flows by an interest rate, namely discount rate

Question 40

What is net present value?

Answer 40

PV of future revenues less PV of purchasing those revenues.

Question 41

What is an annuity?

Answer 41

Sum of money paid in exchange for fixed number of payments.

Question 42

What is a mortgage?

Answer 42

Involves a loan followed by a series of payments reducingthe outstanding debt to 0 at end of fixed period of time.

Question 43

How do you define internal rate of return?

Answer 43

Discount rate that gives an NPV of zero for an investment. Or the discount rate equates the PV of cost of the investment with the PV of the cash flows generated by investment.

Question 44

What is a bond's IRR

Answer 44

Redemption yield.