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| Section | Weight | Objectives |
|---|---|---|
| Topic 1: Statistics and Regression Analysis | 20% | - Linear regression
|
| Topic 2: Numerical Methods & Financial Mathematics | 15% | - Basics of risk modeling - Time value of money - Root finding and approximation |
| Topic 3: Calculus and Functions | 20% | - Multivariable calculus
|
| Topic 4: Probability Theory | 25% | - Basic probability concepts
|
| Topic 5: Linear Algebra and Matrix Theory | 20% | - Matrix operations
|
Question 1
There are two portfolios with no overlapping of stocks or bonds. Portfolio 1 has 6 stocks and 6 bonds.
Portfolio 2 has 4 stocks and 8 bonds. If we randomly select one stock, what is the probability that it came from Portfolio1?
A. 0.3
B. None of these
C. 0.6
D. 0.5
Question 2
In a portfolio there are 7 bonds: 2 AAA Corporate bonds, 2 AAA Agency bonds, 1 AA Corporate and 2 AA Agency bonds. By an unexplained characteristic the probability of any specific AAA bond outperforming the others is twice the probability of any specific AA bond outperforming the others. What is the probability that an AA bond or a Corporate bond outperforms all of the others?
A. 5/7
B. None of these
C. 6/11
D. 8/11
Question 3
Which of the following is not a direct cause of autocorrelation or heteroskedasticity in the residuals of a regression model?
A. The omission of a relevant explanatory variable
B. Using an inappropriate functional form in the model
C. A structural break in the dependent variable
D. A high positive correlation between two explanatory variables
Question 4
Which of the following can induce a 'multicollinearity' problem in a regression model?
A. A high positive correlation between the dependent variable and one of the explanatory variables
B. The omission of a relevant explanatory variable
C. A large negative correlation between the dependent variable and one of the explanatory variables
D. A high positive correlation between two explanatory variables
Question 5
An asset price S is lognormally distributed if:
A. ln(1+dS/S) is normally distributed
B. 1/S is normally distributed
C. the change in price (dS) is normally distributed
D. ln(dS/S) is normally distributed
Solutions:
| Question 1 Answer: C | Question 2 Answer: B | Question 3 Answer: D | Question 4 Answer: D | Question 5 Answer: A |
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