PRMIA 8007 Practice Questions| TestInsights

Question 1

You are given the following regressions of the first difference of the log of a commodity price on the lagged price and of the first difference of the log return on the lagged log return. Each regression is based on 100 data points and figures in square brackets denote the estimated standard errors of the coefficient estimates:

Which of the following hypotheses can be accepted based on these regressions at the 5% confidence level (corresponding to a critical value of the Dickey Fuller test statistic of -- 2.89)?

AThe commodity prices are stationary

BThe commodity returns are stationary

CThe commodity returns are integrated of order 1

DNone of the above

Correct : D

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AThe commodity prices are stationary

BThe commodity returns are stationary

CThe commodity returns are integrated of order 1

DNone of the above

Question 2

Maximum likelihood estimation is a method for:

AFinding parameter estimates of a given density function

BEstimating the solution of a partial differential equation

CSolving a portfolio optimization problem

DEstimating the implied volatility of a simple European option

Correct : A

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AFinding parameter estimates of a given density function

BEstimating the solution of a partial differential equation

CSolving a portfolio optimization problem

DEstimating the implied volatility of a simple European option

Question 3

You are investigating the relationship between weather and stock market performance. To do this, you pick 100 stock market locations all over the world. For each location, you collect yesterday's mean temperature and humidity and yesterday's local index return. Performing a regression analysis on this data is an example of...

ASimple time-series regression

BMultiple time-series regression

CSimple cross-section regression

DMultiple cross-section regression

Correct : D

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ASimple time-series regression

BMultiple time-series regression

CSimple cross-section regression

DMultiple cross-section regression

Question 4

Simple linear regression involves one dependent variable, one independent variable and one error variable. In contrast, multiple linear regression uses...

AOne dependent variable, many independent variables, one error variable

BMany dependent variables, one independent variable, one error variable

COne dependent variable, one independent variable, many error variables

DMany dependent variables, many independent variables, many error variables

Correct : A

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AOne dependent variable, many independent variables, one error variable

BMany dependent variables, one independent variable, one error variable

COne dependent variable, one independent variable, many error variables

DMany dependent variables, many independent variables, many error variables

Question 5

The Newton-Raphson method

Ais based on finding a middle point between left and right end of the search interval

Bis based on Taylor series and uses the first derivative

Ccan be used for continuous but not differentiable functions

Ddoes provide an error bound along with every iteration

Correct : B

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Ais based on finding a middle point between left and right end of the search interval

Bis based on Taylor series and uses the first derivative

Ccan be used for continuous but not differentiable functions

Ddoes provide an error bound along with every iteration

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