Quantitative Investment Concepts

Question 1

The normal curve is ________, with the mean, median and mode are all ________

Answer 1

1. Symmetrical
2. Equal

Question 2

__________ Skewness (distribution skewed to the right, longer right tail)

Answer 2

Positive

Question 3

__________ Skewness (distribution skewed to the left, longer left tail)

Answer 3

Negative

Question 4

In positive skewness, the _______ is the highest of the three measures (mean, median, mode), followed by the _________, then the _______

Answer 4

1.Mean
2. Median
3. Mode

Question 5

In Negative skewness, the _________ is the largest of the three measures, followed by the _________, then the ________

Answer 5

1. Mode
2. Median
3. Mean

Question 6

___________ measures whether a distribution is more or less peaked than a normal distribution

Answer 6

Kurtosis

Question 7

___________ distribution is more peaked than a normal distribution. More observations are clustered closely around the mean. Investors who want to minimize _____________ in their portfolios would prefer this distribution

Answer 7

Leptokurtic, volatility

Question 8

____________ distribution is less peaked than a normal distribution. More observations with large deviations from the mean.

Answer 8

Platykurtic

Question 9

Diversification may be pursued by (1) structuring a portfolio that contains assets with ______ correlation to each other, (2) having a _________ investment time horizon, or (3) both

Answer 9

Low, Longer

Question 10

As the number of stocks increases, the level of unsystematic risk ________

Answer 10

Declines

Question 11

Diminishing returns—adding an additional stock to a portfolio with only five stocks will have a ________ impact on the level of diversification than adding an additional stock to a portfolio of 30 stocks

Answer 11

Greater

Question 12

__________ measures the extent to which two variables (the returns on investment assets) move together, either positively (together) or negatively (opposite). Calculating this is a necessary step in calculating the correlation coefficient

Answer 12

Covariance

Formula: COV ij = ρij σi σj

Question 13

___________ measures the extent to which the returns on any two securities are related; denotes only association, not causation; and measures the strength of the straight-line or linear relationship between two variables

Answer 13

Correlation coefficient (R or ρ)

Combining not perfectly, positively correlated securities will reduce the overall portfolio risk

Question 14

___________ describes the percentage of variability of the dependent variable (e.g., a stock) that is explained by changes in the independent variable (e.g., the overall market)

Answer 14

Coefficient of determination (R-squared)

Question 15

If R^2 = 1 between portfolio and the market, the portfolio contains no ___________ risk

Answer 15

unsystematic

Question 16

If R^2 greater than or equal to ______, Beta is reliable. If less than this amount, beta, although calculable, is not meaningful

Answer 16

0.70

Question 17

______ is a relative measure of systematic risk

Answer 17

Beta

Question 18

Securities with a beta above 1.0 are considered more ________ than the market. Securities with a beta less than 1.0 are less _______ than the market

Answer 18

1. volatile
2. Risky

Question 19

Total risk (systematic and unsystematic risk) is measured by:

Answer 19

Standard Deviation

Question 20

Approximately ____% of outcomes fall within 1 std. dev. of the mean

Answer 20

68%

Question 21

Approximately ____% of outcomes occur within 2 std. dev. of the mean

Answer 21

95%

Question 22

Approximately ____% of outcomes occur within 3 std. dev. of the mean

Answer 22

99%

Question 23

________ measures the number of standard deviations a data value is from the mean (either above or below).

Answer 23

The z-statistic (z-score)

This score is obtained by subtracting the mean from a given data value and dividing this result by the standard deviation.

Question 24

____________ measures the variability of returns below the average or expected return; described as the average square deviation below the mean

Answer 24

Semivariance

When used in analysis, the lower the semivariance of a security, the less likely the security will incur a substantial loss in value