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IMC Unit 2 > Chapter One > Flashcards

Chapter One Flashcards

1
Q

What is data mining?

A

Sorting through large amounts of information looking for anything that is relevant.

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2
Q

What is more risky - interpolation or extrapolation?

A

Interpolation is less risky than extrapolation

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3
Q

Does strong correlation prove cause and effect?

A

No it does not

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4
Q

When is least squares regression applicable?

A

Only to linear relationships

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5
Q

What is plotted on y-axis?

A

Dependent variable

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6
Q

What is b?

A

The slope

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7
Q

How are regression coefficients calculated?

A

Using the least squares method

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8
Q

In a positively skewed distribution, what holds true?

A

Mean > median > mode

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9
Q

What is mean a measure of?

A

Location

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10
Q

Is the IQR affected by extremes?

A

No it is unaffected by extremes

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11
Q

Is the range a fuction of extremes?

A

Yes

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12
Q

If the plot of two variables X and Y results in a horizontal line, this tells us?

A

They have zero correlation as the value of the y variables is independent from the value of the x variable, it does not change regardless of the value of x

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13
Q

Why will interpolated results from a line of best fit not be accurate?

A

Since the line of best fit may not be very accurate

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14
Q

Why does regression analysis not highlight spurious relationships between two variables?

A

It does not in itself prove causality

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15
Q

With a positively skewed distribution…

A

The mean is most distorted by extreme values

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16
Q

Dividing the variance by the standard deviation for a sample would give

A

Standard deviation, as the variance is standard deviation squared

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17
Q

Describe R-squared

A
  1. R-squared expresses the goodness of fit of a regression model
  2. It’s the correlation coefficient squared so is on a scale of 0 to 1
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18
Q

Describe correlation coefficient

A
  1. The correlation coefficient is on a scale of -1 to 1
  2. The correlation coefficient does show strength; the closer to +/-1 the closer the individual observations are to the line of best fit
19
Q

What does CNX Nifty represent?

A

The performance of the largest 50 stocks in India

20
Q

What would be appropriate as a benchmark for a broadly based portfolio of UK and US shares?

A

The respective broad-based equity indices of both markets: S&P 500 and FTSE All Share

21
Q

A disadvantage of the geometric index

A

It cannot be used as a meaningful benchmark as, through its mathematical construction, it cannot fairly reflect achievable portfolio returns

22
Q

Name 3 value-weighted indices

A
  1. S&P 500
  2. FTSE 100
  3. FTSE All Share
23
Q

Is Nikkei 225 value-weighted?

A

No, it is a price-weighted index as it is not weighted by market cap. Therefore, each security contributes an equal share towards the index value

24
Q

What is a price-weighted index also referred to as?

A

An equally weighted index

25
Q

How is DAX calculated?

A

It is arithmetically calculated and weighted by market cap

26
Q

How is Nikkei 225 Index calculated?

A

It is arithmetically calculated however it is equally weighted as each share contributes an equal share

27
Q

Which FTSE index is price-weighted?

A

The FT ordinary is made up of 30 UK shares representing the breadth of UK industry. Size is not the primary consideration, although companies are also in the FTSE 100.

28
Q

UK indices weighted by market cap

A
  1. FTSE all share
  2. FTSE 100
  3. FTSE 250
29
Q

The majority of worldwide indices that are used for performance measurement are described as

A

Value-weighted by market cap, more specifically using the free float, artihmetically calculated

30
Q

Give three equally weighted indices

A
  1. Dow Jones
  2. FTSE ordinary
  3. Nikkei 225
31
Q

Describe the FT ordinary index

A

It is equally weighted, but geometrically calculated

32
Q

What is the name of indices designed to reflect price movements in the bond markets?

A

FTSE Actuaries UK Gilts Indices and comprise various indives covering the market for conventional UK Government bonds and also index-linked securities

32
Q

How are UK Government indices divided?

A

By maturity categories:
1. Up to 5 years
2. 5 to 10 years
3. 5 to 15 years
4. 10 to 15 years
5. Over 15 years

33
Q

Are geometric indices less sensitive to large changes in constituent prices?

A

Yes

34
Q

Will geometric indices always underestimate the performance of the constituents?

A

Yes

35
Q

Are geometric indices the preferred method of index construction?

A

No, very few are calculated using the geometric construction method, the only exception is the FT 30

36
Q

Are individual firms or investors able to affect the price of funds?

A

No

37
Q

Which projects should be accepted by an investor?

A

Only projects generating positive NPV

38
Q

What does NPV assume?

A

That any surplus funds can be reinvested at the same rate of return as the required rate of return

39
Q

Is autocorrelation a characterstic of the normal distribution?

A

No it is not, autocorrelation suggests that returns from one period are in some way connected to those of another but is unrelated to normal distributions

40
Q

What is snowball sampling?

A

A technique that is applied when investigating a characteristic that is quite rare or is hidden within the population, characteristics that make it both difficult and costly to located items with such characteristics

41
Q

When will NPV and IRR provide the same conclusion of the viability of investments?

A

Where capital is freely available and investment opportunities only have a single IRR

42
Q

What does IRR disregard?

A

The scale of any investment opportunity

43
Q

What investment cannot have multiple IRRs?

A

A simple investment that, once bought, only provides positive returns

IMC Unit 2 (11 decks)

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