Statistical Concepts & Market Returns

Question 1

Descriptive Statistics

Answer 1

Summarizes the characteristics of a data set

Question 2

Inferential Statistics

Answer 2

Used to make a probablistic statement about a population based on a sample

Question 3

Nominal scale

Answer 3

No particular order

Question 4

Ordinal Scale

Answer 4

Catagories can be ordered

Question 5

Interval Scale

Answer 5

Differences in data variables are meaningful, but ratios are not meaninful

Question 6

Ratio Scale

Answer 6

Ratios are meaningful, and zero represents an absence of that characteristic

Question 7

What is a parameter?

Answer 7

Any measurable characteristic of a population

Question 8

What is a sample statistic?

Answer 8

A characteristic of a sample

Question 9

What is an interval?

Answer 9

A range of values

Question 10

A frequency distribution…

Answer 10

groups observations into classes, or intervals

Question 11

Relative Frequency

Answer 11

The percentage of total observations falling within an interval

Question 12

Cumulative Frequency for an Interval

Answer 12

the sum of all relative frequencies for all values less than or equal to that intervals maximum value

Question 13

Histogram

Answer 13

Bar chart that is grouped into a frequency distribution

Question 14

Frequency Polygon

Answer 14

• Plots the midpoints of each interval on the horizontal axis and the absolute frequency on the vertical axis
• Then connects the midpoints with straight lines

Question 15

Advantage of histograms and frequency polygons?

Answer 15

They allow us to quickly see where most observations lie

Question 16

The arithmetic mean is the…

Answer 16

average (both population and sample means are arithmetic means)

Question 17

Geometric mean is used to…

Answer 17

Find the compound growth rate

Question 18

Weighted means does what?

Answer 18

Weights each value according to its influence.

Question 19

Harmonic Mean is used to..

Answer 19

find an average purchase price, such as dollars per share for periodic investments

Question 20

The median is the…

Answer 20

midpoint of the data set when data is arranged from largest to smallest

Question 21

What is the mode?

Answer 21

the value that occurs most frequently

Question 22

Quartile

Answer 22

distribution divided into quarters

Question 23

Quintile

Answer 23

distribution divided into fifths

Question 24

Decile

Answer 24

Distribution divided into tenths

Question 25

Percentile

Answer 25

Distribution divided into hundreths

Question 26

Range

Answer 26

Difference between the largest and smallest value in a data set

Question 27

Exhaustive Events

Answer 27

Include ALL possible outcomes

Question 28

Example of an exhaustive event

Answer 28

rolling the dice, rolling a number1-6 is exhaustive

Question 29

Empirical Probabibility

Answer 29

established by analyzing past data

Question 30

Priori Probability

Answer 30

Determined using a formal reasoning and inspection process

Question 31

Unconditional Probability

Answer 31

Simply the probablity of an event occuring

Question 32

Conditional Probablility

Answer 32

- The occurrence of one event affects the probability of another event - Also called "likelihood"

Question 33

Multiplication Rule of Probability

Answer 33

P(AB) = P(A given occurrence of B) * P(B)

Question 34

Addition Rule of Probablility

Answer 34

P(Aor B) = P(A) + P(B) - P(AB)

Question 35

Total Probability Rule

Answer 35

P(A) = (P(A given occurrance of B1)*P(B1)) + (P(A given occurrence of B2)* P(B2))....... -where B1,B2,Bn is a mutually exclusive, exhaustive series of eventsl

Question 36

Joint Probability Equation (Multiplication Rule)

Answer 36

P(AB)= P(A given that B) * P(B)

Question 37

Addition rule of probability for Mutually exclusive events

Answer 37

P(A or B) = P(A) + P(B)

Question 38

With independent events, "and" indicates__ and "or" indicates _____

Answer 38

With independent events, "and" indicates multiplication and "or" indicated addition

Question 39

Independent Events rule equation

Answer 39

- Independent if P(A given B) = P(A) | - If not they are dependent

Question 40

Expected Value

Answer 40

Weighted average of all possibe outcomes of a random variable, where weights are the probabilities that the outcomes will occur.

Question 41

Example of a "Population"

Answer 41

A cross section of returns of all stocks traded on the NYSE

Question 42

Modal Interval

Answer 42

The interval with the greatest frequency in a frequency distribution

Question 43

Measures of central tendency

Answer 43

identify the center, or average, of a data set

Question 44

When there are outliers in data, you should use the_____

Answer 44

Median, because arithmetic means can be affected by outliers

Question 45

Bimodal

Answer 45

A distribution that has two values that occurs most frequently

Question 46

The geometric mean is always _________to the arithmetic mean

Answer 46

Geometric mean is always less than or equal to the arithmetic mean

Question 47

"Dollar Cost Averaging"

Answer 47

purchasing the samme dollar amount of mutual fund share each month or each week

Question 48

Percentile Calculation

Answer 48

Ly= (n+1) * y/100

Question 49

"Dispersion" is defined by

Answer 49

variability around the central tendency

Question 50

Mean Absolute Deviation explanation

Answer 50

the average of the absolute values of the deviations of individual ovservations from the arithmetic mean

Question 51

Population Variance explanation

Answer 51

-the average of the squared deviations from the mean

Question 52

Explan the population standard deviation

Answer 52

the population standard deviation is the square root of the population variance

Question 53

How to find the population standard deviation?

Answer 53

Essentially you take the square root of the population variance equation

Question 54

What does Covariance measure?

Answer 54

the extent to which two random variables tend to be above and below their respective mean

Question 55

What is Correlation?

Answer 55

Correlation is the measure of association between two random variables

Question 56

Equation for Expected returns for a 2-asset portfolio

Answer 56

E(Rp) = w1*E(R1) + w2*(E(R2)

Question 57

Correlation Equation

Answer 57

CORR(Ri, Rj) = Cov(Ri, Rj) / (STDVi * STDVj)

Question 58

Expected Return Equation

Answer 58

P(Xn)Xn + .....

Question 59

Covariance Equation

Answer 59

E(x) * (Ri - E(Ri)) * (Rj- E(Rj)) +.....