Exam 2 Flashcards
Question 1: Why did it become a good investment to bet against
mortgage-backed securities.
A) The default rate on the mortgages kept rising.
B) Rating agencies were accurately assigning ratings.
C) Banks were incentivized to issue more and more mortgages.
D) A and C
D
Question 2: In terms of the fundamental law, when aiming for high
performance, you can make up for low skill with ___.
A) low breadth
B) low sharpe ratio
C) high breadth
D) high volatility
C
Question 3: Is Bollinger Bands a leading indicator?
A) Yes
B) No, Bollinger Bands is a lagging indicator
C) No, Bollinger Bands is not an indicator
D) No, Bollinger bands is neither a leading or a lagging indicator
B
Question 4: What should you do when the stock hits the bottom Bollinger
Band?
A) Hold your position (don’t change your position at all)
B) Exit any position you currently have and then hold at 0 shares
C) Short the stock to have negative shares
D) Long the stock to have positive shares
D
Question 5: Who was the first bank Michael approached to make him the CDSs? A) JP Morgan B) Goldman Sachs C) Deutsche Bank D) Bank of America
B
Question 6: If the Information Coefficient is doubled and the trading
opportunities are multiplied by 9, what happens to the Information Ratio.
A) The Information Ratio is multiplied by 1 (remains unchanged)
B) The Information Ratio is multiplied by 4.5
C) The Information Ratio is multiplied by 6
D) The Information Ratio is multiplied by 18
C
Question 7: What is the best way an investor who is lacking in skill can beat a more skillful investor? A) Hire skillful people B) Make smarter trades C) Make more trades per day D) Pick better stocks
C
Question 8: Which statement is true regarding the Fundamental Law of Portfolio Management? A) IR = IC * sqrt(BR) B) IC = IR * sqrt(BR) C) BR = IC * IR D) IR = IC + sqrt(BR)
A
Question 9: Which of the following can not improve your performance
based on the Fundamental Law?
A) Improve your skill
B) Increase the Breadth
C) Increase the IC and BR
D) Decrease breadth but improve the skill
D
Question 10: What does CDS stand for? A) Collateralized Debt Swap B) Credit Default Swap C) Collateralized Debt Security D) Credit Default Security
B
Question 11: In the movie “The Big Short”, what did Credit Default Swaps
do?
A) Insured the bonds against failure and the insurer paid the claim if the
underlying bonds fail
B) Insured the bonds against failure and the insurer paid the claim if the
underlying bonds make money
C) To increase employees
D) As an annual practice
A
Question 12: Which of the following is not the keys of Grinold's fundamental law? A) Skill B) Performance C) Luck D) Breadth
C
Question 13: Which of these scenarios does not indicate an upward trend
in stock price:
A) A particular stock’s price surpasses the upper Bollinger Band
B) A particular stock’s 20-day SMA surpasses its 100-day SMA
C) A particular stock’s short-term EMA falls below its long-term EMA
D) The value of a particular stock’s Bollinger Band Percentage > 0.8
and its price/SMA ratio is >= 1
C
Question 14: Which of these could represent a State in a Reinforcement
Learning problem when referring to a trading scenario?
A) BUY
B) Daily Return
C) Return from Trade
D) All of the above
B
Question 15: Which celebrity chef and “Kitchen Confidential” author
explains collateralized debt obligations (CDOs) by comparing them to fish
stew?
A) Gordon Ramsay
B) Mario Batali
C) Thomas Keller
D) Anthony Bourdain
D
Question 16: Following statement is true or false: Hedge Funds cannot
succeed if EMH applies.
A) True
B) False
B
Question 17: In Reinforcement Learning, the default MDP has an
assumption of infinite horizons to overcome that, we introduce a concept
of ___________ rewards. Multiplying the reward by λ raised to t. Where
λ’s limits are ___< λ <=___.
A) [reduced , -1, 1]
B) [reduced, 0 , 1]
C) [discounted, -1, 1]
D) [discounted, 0 , 1]
D
Question 18: Do you think that a market that is semi-strong efficient is
also weak form efficient? Why or Why not?
A) Yes it does, because semi-strong EMH states that the prices adjust
immediately to all publicly available information, which also
includes the asset’s price history and vol data.
B) No it does not, because semi-strong EMH talks only about
fundamental data such as the company’s earnings.
C) Yes it does, because semi-strong EMH states that the prices adjust
immediately to all publicly and privately available information.
D) No it does not, as semi-strong EMH talks about information that is
mutually exclusive to weak form EMH.
?
Question 19: Given that EMH is about 3 forms, weak, semi-strong, and
strong. What would be the behavior of prices, if, for example, the
standard investor became one that only bought and held stocks passively?
A) There would be no change in the way that prices adjusted
B) Prices will fail eventually to show any type of new information.
There will be incentives to trade more
C) Prices will continue to change based on new information that
won’t cease to enter the market
D) We would probably enter another recession
B
Question 20: The goals of unsupervised learning and reinforcement
learning are:
A) The goal of unsupervised learning is to find similarities and
differences between data points; the goal of reinforcement
learning is to find a suitable action model to maximize cumulative
reward;
B) The goal of unsupervised learning is to find a suitable action
model to maximize cumulative reward; the goal of reinforcement
learning is to find similarities and differences between data
points;
C) The goal of both unsupervised learning and reinforcement
learning is to find similarities and differences between data
?
Question 781: Which of the following is NOT an assumption of the
Efficient Markets Hypothesis?
A) Small number of investors operating in the market for profit
B) New information arrives randomly
C) Prices adjust quickly
D) Prices reflect all available information
A
Question 780: Based on Mean Variance Optimization, you should look for
stocks with:
A) anti-correlation in short terms and positive-correlation in long
terms
B) anti-correlation in short terms and positive-correlation in short
terms
C) anti-correlation in long terms and positive-correlation in long
terms
D) anti-correlation in long terms and positive-correlation in short
terms
A
Question 779: To triple the information ratio of our hedge fund we can …
A) Increase our Breadth by 3 times
B) Decrease our Information Coefficient by 3 times
C) Decrease our Breadth by 3 times
D) Increase our Breadth by 9 times
D
Question 777: RR labs’ stock price on Sept 10, 2018, was $200. On Sept
11, 2018, RR Labs announced that they invented a drug that could cure
stage 3 cancer. On Sept 12, 2018, the stock price of RR labs was $200.
What do you infer about the informational efficiency of the markets?
A) Weak form
B) Semi-Strong Form
C) Strong Form
D) Both A and B
A
Question 775: Which of the following statement is incorrect?
A) The fundamental law is designed to give us insight into active
management.
B) The fundamental law is designed to give us insight into passive
management.
C) The fundamental law connects breadth and skill to the
information ratio
D) All of the above are correct.
B
Question 773: Suppose two portfolios have the same average return, the
same standard deviation of return but portfolio A has a higher beta than
portfolio B. According to the Sharpe ratio, portfolio A’s performance is:
A) better than B
B) poorer than B
C) same as B
D) not enough information
C
Question 771: What is the Fundamental Law of Active Management by
Grinold and Kahn?
A) Information Ratio = Information Coefficient * squareroot(Number of
trading opportunities per year)
B) Information Ratio = Information Coefficient / Number of trading
opportunities per year
C) Information Ratio = Information Coefficient * Number of trading
opportunities per year
D) Information Ratio = squareroot(Information Coefficient) * Number of
trading opportunities per year
A
Question 772: You’re considering several portfolio allocations, including:
portfolio A, which yields a 25% return with a Sharpe ratio of 2.0, B which
yields a 50% return with a SR of 1.0, C which yields a 25% return with a SR
of 1.0 and D which yields a 10% return with a SR of 2.0. You plot the
potential portfolios’ risk and return and the resulting efficient frontier.
Where would portfolio C lie?
A) Above/to the left of the efficient frontier
B) On the efficient frontier
C) Below/to the right of the efficient frontier
D) Not enough information to know for sure
C
Question 774: A hedge fund engaging in technical analysis do think that
A) EMH Weak form is correct but Semi-strong is not
B) EMH Semi-strong form is correct but strong form is not
C) EMH strong form is correct
D) EMH is incorrect regardless of which form
D
Question 776: Which of the following is true when comparing
reinforcement learning and linear regression?
A) Reinforcement learning tells us when to sell our stock, while linear
regression does not
B) Reinforcement learning tells us which stock will yield the biggest
return over a certain period, while linear regression does not
C) Reinforcement learning tells us the uncertainty of the price
change, and so does linear regression
D) Reinforcement learning is a faster model to train when compared
to linear regression
A
Question 778: What is reinforcement learning?
A) System is given no data and learns based on outcomes from
interactions with its environment
B) System is given a dataset along with correct output and must find
a relationship in the dataset
C) System is given a just a dataset and must find a relationship in the
dataset
D) System generates random numbers in an endless loop
A
Question 21: What is the meaning of “synthetic CDO” in “the big short”
movie?
A) A CDO that contains subprime mortgages
B) A CDO that contains student loan
C) A CDO that contains credit default swaps
D) A CDO that contains corporate debt
C
Question 23: Suppose you purchase a call option for a single stock Correct answer: B
(assume that you can do so) for $10 on a day where the stock price is $7
under the strike price. Starting from then, the price rises monotonically
through the expiration date, on which the price of the stock is $3 above
the strike price. What is the maximum net profit that you can make during
this time period, assuming your only choices are to either exercise or not
exercise the option?
A) -$10
B) -$7
C) -$3
D) $3
?
Question 25: In an actively managed portfolio, what strategy may help
you improve breadth?
A) Increase your information ratio
B) Finding additional stocks and markets
C) Increase your information coefficients
D) Trade ETFs only
B
Question 27: According to the movie “The Big Short”, which of the
following is closest in meaning to a “Credit Default Swap (CDS)”?
A) Going short on the default of mortgage-backed securities
B) Going long on the default of mortgage-backed securities
C) Collateralized Debt Obligation (CDO)
A
Question 29: Which of the following is NOT an example of a state (s) in reinforcement learning? A) Holding Long B) Momentum Value C) Daily Returns D) Holding short
C
Question 22: According to the Fundamental Law, which of the following
statements is most accurate?
A) Increasing skill and/or breadth will increase performance, but it’s
more difficult to increase breadth than skill, and increasing skill
isn’t as effective as increasing breadth.
B) Increasing skill and/or breadth will increase performance, but it’s
more difficult to increase skill than breadth, and increasing
breadth isn’t as effective as increasing skill.
C) Utilizing machine learning will increase performance.
D) A Georgia Tech education including CS7646 coursework will
increase performance.
?
Question 24: Which of the following statements about Dyna is true?
A) Dyna is a model-free based method.
B) Dyna is the basis for Q-Learning.
C) Dyna is a blend of model-free and model-based methods
D) Dyna is more expensive than Q-Learning
C
Question 26: Which of the following attribute of Q learning is important in convergence over infinite horizon? A) rar B) radr C) alpha D) gamma
D
Question 28: Which option below correctly describes the advantage of
options?
A) You cannot lose more than the premium.
B) You can always get the premium back.
C) Options do not have expiration dates.
D) You can hold options for infinite amount of time.
A
Question 30: What has the lowest risk ? A) Stocks B) Bonds C) Stocks and Bonds D) Precious Materials
C
Question 32: What has the lowest risk for return? A) Stocks B) Bonds C) Stocks and Bonds D) Precious material
C
Question 34: Key method to measure the performance of a portfolio manager is: A) Information Ratio B) Compound Annual Growth Rate C) Information Coefficient D) Specific Risk
A
Question 36: Which of the following statements related to Efficient
Market Hypothesis is NOT TRUE?
A) EMH assumes that agents are rational and people do NOT
overreact or underreact when faced with new information.
B) Semi-strong-form efficiency implies that neither fundamental
analysis nor technical analysis techniques will be able to reliably
produce excess returns
C) Weak form of the EMH leaves room for Fundamental Analysis.
D) In P/E ratio vs Return% dataset graph, The correlation between
Price-Earnings ratio, 20-year annualized returns could be used to
refute the efficient market hypothesis.
?
Question 38: Jared Vennett sells the 'Credit Default Swaps' . What does Mark Baum use it for? A) Short the market. B) Buy the same credit swaps again. C) Buy half the credit swaps. D) Long the market.
A
Question 40: According to Bloomberg News, what opportunity similar to
CDO which several large banks have started selling since 2015?
A) Collateralized Mortgage Obligation
B) Bespoke Tranche Opportunity
C) Asset-Backed Security
D) Synthetic CDO
B
Question 39: What is the reason that the main characters in “The Big
Short” decide in credit default swaps?
A) They all read a paper that predicted the possible stock market
crash.
B) They all noticed that the housing loan market was inflated with
high risk loans being structured into loan packages with a AAA
rating (low risk rating)
C) They all noticed that the housing loan market was inflated with
medium risk loans being structured into high risk loan packages
like BB to CCC.
D) They all got tipped off by the SMA for housing loan market
predicting a change in the trend.
?
Question 37: Given 2 companies have same Information Ratio Company A
has algorithm 100 time smarter than Company B Company A trades for
20 days a year How many trades does company B need to execute?
A) 200000
B) 20000
C) 2000000
D) 2000
A
Question 35: What is TRUE about the efficient frontier
A) The efficient frontier was introduced by William F. Sharpe, who
also developed the Sharpe ratio method for calculating riskadjusted return
B) You can find portfolios not on the efficient frontier that have a
higher return for the same amount of risk
C) You can find portfolios not on the efficient frontier that have
higher risk for the same amount of return
D) Assuming none of the asset is risk-free, as the expected return
decreases, the risk value of the efficient frontier will keep
decreasing
?
Question 33: In the movie, The Big Short, characters in the film, such as
Michael Burry, would acquire ________ in order to short the
MBS(Mortgage Backed Securities) which means betting against the
housing market.
A) Synthetic CDO
B) CDO Squared
C) Credit Default Swaps
D) Sub-prime mortgages
C
Question 31: In the movie, The Big Short, characters in the film, such as
Michael Burry, would acquire ________ in order to short the
MBS(Mortgage Backed Securities) which means betting against the
housing market.
A) Synthetic CDO
B) CDO Squared
C) Credit Default Swaps
D) Sub-prime mortgages
C
Question 41: Fill in the blank. Transition function is a three dimensional
object given by T[s,a,s’]. Suppose we are in state “s” and take particular
action “a” then the sum of all the next states “s’(s prime)” we might end
up in should sum to be __.
A) always 0
B) always 1
C) either 0 or 1
D) always more than 1
B
Question 43: Which stock properties would best be considered to
comprise an optimal portfolio with higher combined returns and lower
risk than either of the individual stocks.
A) Stocks ABC and DEF with covariance value of +0.9.
B) Stocks ABC and DEF with covariance value of -0.9.
C) Stocks ABC and DEF with combined Sharpe Ratio of 1.0.
D) Stocks ABC and DEF with combined Sharpe Ratio of 0.0.
B
Question 45: The discount factor allows us to value:
A) Helps to achieve maximum returns over long term
B) long-term reward more than short term reward
C) short-term reward more than long-term ones
D) None of the above
C
Question 47: In order to reduce risk while maximizing returns, portfolios
often allocate stocks based upon _____ correlation in the short term and
_____ correlation in the long term.
A) negative, positive
B) zero, positive
C) positive, positive
D) zero, zero
A
Question 49: For Grinold’s Fundamental Law, what is Information Ratio (performance) similar to? A) Volatility B) Sharpe Ratio C) Cumulative Return D) Daily Return
B
Question 50: Which of the following is an issue when we buy or sell stocks with most significant price changes? A) Certainty of price change B) Determining an entry position C) Both A and B D) None of the above
A
Question 48: In order to reduce risk while maximizing returns, portfolios
often allocate stocks based upon _____ correlation in the short term and
_____ correlation in the long term.
A) negative, positive
B) zero, positive
C) positive, positive
D) zero, zero
A
Question 46: Which of the following hypotheses hold under Efficient
Market Hypothesis?
A) EMH implies that it is impossible to predict perfectly future
returns
B) EMH implies that prices must incorporate all existing information
C) EMH implies that prices vary with no clear reason
D) EMH implies that prices do not fluctuate
B
Question 44: When 2 FrontPoint traders, Danny and Porter travel to
Miami to investigate current housing development, they learn…
A) there are several large families living in the same house.
B) most homeowners have defaulted on their mortgages and have
moved out.
C) landlords in these areas are keeping up with their mortgage
payments.
D) they need to long the housing market.
B
Question 42: If a stock is said to have good relative strength, it means:
A) The ratio of the price of the stock to a given market index has
trended upwards
B) The recent trading volume of the stock has exceeded its average
trading volume
C) The stock has performed well compared with other stocks in the
same risk category as measured by beta
D) The total return of the stock has exceeded the total return on
other stocks in the same industry
A
