Quantitive Methods Flashcards
What type of data involves collection or generation of data with specific task in mind?
Primary data
What type of data is collected for distribution and use by other interested parties?
Secondary data
What is defined as all members of a well defined group?
Population
What is a subset of a population?
Sample
If we wanted to achieve deeper understanding of population who would we collect from?
A subset of population.
What type of data can only take a finite number of different values and can be presented visually in pie or bar charts?
Discrete data
What type of data can take any value in an interval of a real line and can be presented visually in a histogram?
Continuous data
What type of graph involves grouping data in intervals and representing the frequency of occurrence of that interval by area of a bar?
Histogram
What graph plots pairs of values of two related variables on the same graph?
Scatter diagram
What statistics describe in summary essential features of a dataset and include measures of central tendency and measures of dispersion?
Descriptive statistics
If data are distributed such that the mode is less than the median which is less than the mean the distribution of data has what kind of skew?
Positive skew
If data are distributed such that the mean is less than the median which is less than the mode the distribution of data has what kind of skew?
Negative skew
What is a list of all possible outcomes of a variable along with relative frequency of occurrence? N
Probability distribution
What will all probabilities sum up to?
Unity because at least one outcome must occur when an experiment is conducted
What type of distribution occurs as a reasonable description for the outcomes of many naturally occurring phenomena?
Normal distribution
What is the special feature of normal distribution?
Median, mode and mean are identical and shape is perfectly symmetrical about this central point.
Why is normal distribution is important for testing hypotheses about key numbers or behaviours in finance?
Allows question whether observed numbers such as equity risk premium for one country over a period of time are consistent with particular hypothesised number.
What can we do with the hypothesised number?
Make probability statements about likelihood of particular sample number occurring. This acts as a check on reliability or credibility of theories.
How can we summarise a linear relationship between two variables?
By using bivariate linear regression in which one of the variables is dependent and may be estimated from other independent variables.
How do we choose the intercept and slope coefficients?
Using ordinary least squares and measure the goodness fit by the coefficient of determination.
What can we use to extrapolating or forecasting values of dependent variable?
Using linear regression.
What is involved to take value of 100 during selected base period?
Rescaling a variable
What does an index number always reflect?
The percentage change in variable relative to base year.
How do you rebase a series?
Index number in particular year is divided by index number in the new base and multiplied by 100
How do you calculate a simple arithmetic price index?
Add prices of relevant constituents in a year and divide by the sum prices of the of constituents at the chosen year base
How do you calculate geometric index?
Obtaining the product prices of constituents in a year and dividing by product of constituents in a base year and then talking the nth root where n is the number of constituents in the index.
What are the characteristics of a geometric index?
Always equal to or less than an equivalent simple arithmetic index. Also less sensitive to large changes in price of a constituent element compared to equivalent simple arithmetic index.
In a geometric index what happens if one of the prices of a constituent falls to 0?
The geometric index will be 0 for that year
How can you distinguish between equally weighted and market value weighted price indices?
Equally weighted indices gives more weight to pair changes of assets that have low market cap
Why are financial market indices important?
They provide a benchmark against which performance of investment funds may be measured by. They facilitate easy comparison between different asset classes and in some cases have become underlining security on which derivative contract based on
What type of index is FT30 index?
Equally weighted geometric index
What indices are market weighted arithmetic?
FTSE 100, FTSE 250, FTSE All World, CAC40, DAX
What type of index is Dow Jones Industrial Average?
Unweighted simple aggregation of 30 largest US stocks.
What type of index is S&P 500?
Market weighted average.
How do bond Indias measure total returns?
Coupons, investment income, price changes measure total return.
How to distinguish between simple and compound interest?
Compound interest involves interest on interest.
What it involved in calculating annual percentage return?
Involves annualising a measure of return usually quoted on monthly, quarterly semiannual basis by compounding.
What do we use concept of present value for?
To translate future cash payments into values in the present.
How is present value obtained?
By discounting future cash flows by an interest rate, namely discount rate
What is net present value?
PV of future revenues less PV of purchasing those revenues.
What is an annuity?
Sum of money paid in exchange for fixed number of payments.
What is a mortgage?
Involves a loan followed by a series of payments reducingthe outstanding debt to 0 at end of fixed period of time.
How do you define internal rate of return?
Discount rate that gives an NPV of zero for an investment. Or the discount rate equates the PV of cost of the investment with the PV of the cash flows generated by investment.
What is a bond’s IRR
Redemption yield.
