Concepts (CH 3): Statistical Concepts and Market Returns

Question 1

refer to data and to the methods used to analyze data

Answer 1

statistics

Question 2

what are the two statistical methods

Answer 2

descriptive & inferential

Question 3

used to summarize the important characteristics of a large data set

Answer 3

descriptive

Question 4

procedures used to make forecasts, estimates, or judgements about a large set of data on the basis of the statistical characteristics of a smaller set (a sample)

Answer 4

inferential

Question 5

set of all possible members of a stated group

Answer 5

population

Question 6

subset of the population of interest

Answer 6

sample

Question 7

What are the types of measurement scales

Answer 7

nominal scales, ordinary scales, interval scales, ratio scales

Question 8

observations are classified/ counted in no particular order (least information)

Answer 8

nominal scales

Question 9

• higher level of measurement than nominal scales
• every observation is assigned to one of several categories
• categories are ordered with respect to a specified characteristic

Answer 9

ordinary scales

Question 10

• provides relative ranking, like ordinary scales
• differences between scale values are equal

Answer 10

interval scales

Question 11

What is the weakness of the interval scale?

Answer 11

measurement of zero (0) does not necessarily indicate the total absence of what is being measures

Question 12

• most refined level of measurement
• provides ranking and equal differences
  between scale values
• have a true zero point as origin

Answer 12

ratio scales

Question 13

measure used to describe a characteristic of a population

Answer 13

PARAMETER

Question 14

measures characteristic of a sample

Answer 14

SIMPLE STATISTIC

Question 15

- tabular presentation of statistical data that aids the analysis of large data sets
- summarizes statistical data by assigning
it to specified groups, or intervals
- data employes with a frequency distribution may be measured using any
type of measuryment scale

Answer 15

FREQUENCY DISTRIBUTION

Question 16

in a frequency distribution, it is the interval with the greatest frequency

Answer 16

modal interval

Question 17

• useful way to present data
• percentage of total observations falling within each interval

Answer 17

RELATIVE FREQUENCY

Question 18

sum of the absolute or relative
frequency starting at the lower interval and progressing through the highest

Answer 18

CUMULATIVE ABSOLUTE FREQUENCY/CUMULATIVE RELATIVE FREQUENCY

Question 19

• graphical presentation of the absolute
  frequency distribution
• bar chart of continuous data
• allows us to see where most
  observations are concentrated

Answer 19

HISTOGRAM/FREQUENCY POLYGON

Question 20

• the midpoint of each interval is plotted on the horizontal axis and the absolute frequency for that interval is plotted on the vertical axis
• points are connected with a straight line

Answer 20

frequency polygon

Question 21

• identify the center, or average of a data set
• can be used to represent the typical or expected value in the data set

Answer 21

measures of central tendency

Question 22

all observed values in the population are summed and divided by the number of observations in the population

Answer 22

population mean

Question 23

sumofallthevaluesinasampleofa population divided by the number of observations in the sampler

Answer 23

sample mean

Question 24

• most widely used measure of central tendency
• only measure of central tendency for which the sum of the deviations from the mean is zero (0)

Answer 24

ARITHMETHIC MEAN

Question 25

recognizes that different observations may have a disproportionate influence on the mean

Answer 25

WEIGHTED MEAN

Question 26

value that occurs most frequently in a data set

Answer 26

MODE

Question 27

- when a distribution has one value that appears most frequently

Answer 27

unimodal

Question 28

when a set of data has two or three values that occur most frequently

Answer 28

bimodal or trimodal

Question 29

is often used when calculating investment returns over multiple periods or when measuring compound growth rates

Answer 29

GEOMETRIC MEAN

Question 30

- used for certain computations - such as the average cost of shares purchased over time

Answer 30

HARMONIC MEAN

Question 31

uncertain quantity/number

Answer 31

random variable

Question 32

an observed value of a random variable

Answer 32

outcome

Question 33

single outcome or a set of outcomes

Answer 33

event

Question 34

events that cannot both happen at the same time

Answer 34

mutually exclusive events

Question 35

those that include all possible outcomes

Answer 35

exhaustive events

Question 36

2 defining properties of probability

Answer 36

1. probability of occurrence of any event is between 0 and 1 2. if a set of events, E1, E2,... En, is mutually exclusive and exhaustive, the probability of those events sum to 1

Question 37

established by analyzing past data

Answer 37

empirical probability

Question 38

determined using a formal reasoning and inspection process

Answer 38

priori probability

Question 39

- least formal method of developing probabilities - involves the use of personal judgment

Answer 39

subjective probability

Question 40

stating the odds that an event will or will not occur is an alternative way of expressing probabilities

Answer 40

ODDS FOR and AGAINST the EVENT

Question 41

- marginal probability - probability of an event regardless of the past or future occurrence of other events

Answer 41

unconditional probability

Question 42

- occurrence of one event affects the other probability of the occurrence of another event

Answer 42

conditional probability

Question 43

- the probability that they will both occur - can be calculated from the conditional probability that A will occur given B occurs (conditional) and the probability that B will occur (unconditional)

Answer 43

MULTIPLICATION RULE OF PROBABILITY

Question 44

- used to determine the probability that at least one of the 2 events will occur - either A or B will occur

Answer 44

addition rule

Question 45

- refer to events for which the occurrence of one does not influence the occurrence of the others - can be expressed in terms of conditional probabilities

Answer 45

INDEPENDENT EVENTS

Question 46

- the occurrence of event A affects the probability of the occurrence of event B

Answer 46

DEPENDENT EVENTS