1 quant reading 2 organizing, visualizing, and describing data answers

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Question #1 of 95 Question ID: 1456281Consider the following statements about the geometric and arithmetic means as measures

of central tendency Which statement is least accurate?

A)The di erence between the geometric mean and the arithmetic mean increaseswith an increase in variability between period-to-period observations

B)The geometric mean may be used to estimate the average return over a

one-period time horizon because it is the average of one-one-period returns

C)The geometric mean calculates the rate of return that would have to be earnedeach year to match the actual, cumulative investment performance

Explanation

The arithmetic mean may be used to estimate the average return over a one-period timehorizon because it is the average of one-period returns Both remaining statements aretrue

(Module 2.3, LOS 2.h)

What is the compound annual growth rate for stock A which has annual returns of 5.60%,22.67%, and -5.23%?

Which of the following best describes a frequency distribution? A frequency distribution is agrouping of:

A) data into groups, the numerical order of which does not matter

B) measures used to describe a population

C) data into non-overlapping intervals

Explanation

A frequency distribution is a presentation of data grouped into non-overlapping intervals

to aid the analysis of large data sets

(Module 2.1, LOS 2.c)

A linear or nonlinear relationship between two variables is best visualized using a:

A) cumulative distribution chart

B) bubble line chart

C) scatter plot

Explanation

A scatter plot is useful for visualizing the relationship between two variables An

advantage of scatter plots is that they can reveal nonlinear relationships that measures oflinear relationship such as correlation might not show

(Module 2.2, LOS 2.e)

Assume that the following returns are a sample of annual returns for firms in the clothingindustry

Firm 1 Firm 2 Firm 3 Firm 4 Firm 5

The sample standard deviation is closest to:

A) 7.2

An investment experienced the following returns over the last 10 years:

Year Return Deviations below 4% Squared deviations

If Stock X's expected return is 30% and its expected standard deviation is 5%, Stock X'sexpected coefficient of variation is:

Annualized monthly returns from an investment strategy over the past year are as follows:6% 3% 7% 8% 2% –1% 6% 9% 4% 11% 7% 6%

Using a target annualized return of 5%, the target downside deviation of these returns is

An investor has a portfolio with 10% cash, 30% bonds, and 60% stock If last year's return oncash was 2.0%, the return on bonds was 9.5%, and the return on stock was 25%, what wasthe return on the investor's portfolio?

= √ (3–5)2+(2–5)2+(–1–5)2+(4–5)2 = 2.132%

12–1

Find the weighted mean of the returns (0.10 × 0.02) + (0.30 × 0.095) + (0.60 × 0.25) =18.05%

Asset Weight Return Weight × Return

Which of the following is most likely an example of structured data?

A) Social media posts

B) Management’s discussion and analysis of a company’s nancial condition

C) Daily closing prices for a stock over the past month

Explanation

Daily closing prices for a stock are an example of structured data Social media posts andthe management discussion and analysis are examples of unstructured data, in that theyconsist largely of written text

(Module 2.1, LOS 2.a)

The sample of per square foot sales for 100 U.S retailers in December 2004 is an exampleof:

A) cross-sectional data

B) time-series data

C) panel data

Explanation

Cross-sectional data are a sample of observations taken at a single point in time A series is a sample of observations taken at specific and equally spaced points in time.Panel data consist of a cross-section of time series data.

time-(Module 2.1, LOS 2.a)

Use the results from the following survey of 500 firms to answer the question

Number of Employees Frequency

A frequency polygon is best suited to summarizing:

A) unstructured textual data

B) a distribution of numerical data.

C) underlying trends over time

Explanation

A frequency polygon depicts the shape and range of a distribution

(Module 2.2, LOS 2.e)

If a distribution is positively skewed, then generally:

A) mean > median < mode

B) mean < median < mode

C) mean > median > mode

Explanation

When a distribution is positively skewed the right side tail is longer than normal due tooutliers The mean will exceed the median, and the median will generally exceed the modebecause large outliers falling to the far right side of the distribution can dramaticallyinfluence the mean

(Module 2.5, LOS 2.l)

A scatter plot matrix is best suited to visualize:

A) trends in more than one variable over time

B) correlations among multiple variables

C) the joint variability between two variables

Question #16 of 95 Question ID: 1456260Which of the following tools is best suited for visualizing the relative changes over time inthe daily closing prices for two stocks?

(Module 2.2, LOS 2.e)

Twenty students take an exam The percentages of questions they answer correctly areranked from lowest to highest as follows:

Question #18 of 95 Question ID: 1462765

An analyst observes the following four annual returns: R1 = +10%, R2 = –15%, R3 = 0%, and R4

= +5% The average compound annual rate over the four years is closest to:

Michael Philizaire decides to calculate the geometric average of the

appreciation/deprecation of his home over the last five years Using comparable sales andmarket data he obtains from a local real estate appraiser, Philizaire calculates the year-to-year percentage change in the value of his home as follows: 20, 15, 0, –5, –5 The geometricreturn is closest to:

Question #20 of 95 Question ID: 1482625

A sample of returns for four randomly selected assets in a portfolio is shown below:

sample minus one

Position Return (%) (Return – Mean)2

The annual returns on 5 portfolio investments for the last year are shown in the followingtable What is the return on the portfolio and the geometric mean of the returns on theportfolio investments?

Investment Invested Amount Return (%)

Twenty Level I CFA candidates in a study group took a practice exam and want to determinethe distribution of their scores When they grade their exams they discover that one of themskipped an ethics question and subsequently filled in the rest of his answers in the wrongplaces, leaving him with a much lower score than the rest of the group If they include thiscandidate's score, their distribution will most likely:

A) have a mean that is less than its median

B) have a mode that is less than its median

C) be positively skewed

Explanation

With the low outlier included, the distribution will be negatively skewed For a negativelyskewed distribution, the mean is less than the median, which is less than the mode.

(Module 2.5, LOS 2.l)

Trina Romel, mutual fund manager, is taking over a poor-performing fund from a colleague.Romel wants to calculate the return on the portfolio Over the last five years, the fund'sannual percentage returns were: 25, 15, 12, -8, and –14

Determine if the geometric return of the fund will be less than or greater than the arithmeticreturn and calculate the fund's geometric return:

Geometric Return Geometric compared to

An analyst presents a confusion matrix for a model that predicts loan payment defaults bycompanies:

Actual Default Actual No Default Total

companies predicted not to default is 80, and for 30 companies the model correctly

predicted that they would not default (i.e., predicted "no" and actual default "no")

(Module 2.1, LOS 2.d)

An analyst takes a sample of yearly returns of aggressive growth funds resulting in thefollowing data set: 25, 15, 35, 45, and 55 The mean absolute deviation (MAD) of the data set

Calculate the mean:

To get the mean absolute deviation, sum the deviations around the mean (ignoring thesign), and divide by the number of observations:

(Module 2.4, LOS 2.j)

Which of the following statements concerning a distribution with positive skewness andpositive excess kurtosis is least accurate?

A) The mean will be greater than the mode

B)It has a lower percentage of small deviations from the mean than a normal

What does it mean to say that an observation is at the sixty-fifth percentile?

A) The observation falls within the 65th of 100 intervals

B) 65% of all the observations are above that observation

C) 65% of all the observations are below that observation

Question #28 of 95 Question ID: 1456323The correlation between two variables is –0.74 The most appropriate way to interpret thiscorrelation is that:

A) there is unlikely to be a strong linear relationship between the two variables

B)if one of the variables increases, there is a 74% probability that the other

variable will decrease

C) the two variables have a negative linear association

Explanation

A correlation coefficient of –0.74 suggests a relatively strong negative linear associationbetween the two variables We cannot interpret the correlation coefficient directly as ameasure of the probability that the two variables will change in opposite directions

(Module 2.5, LOS 2.n)

For the last four years, the returns for XYZ Corporation's stock have been 10.4%, 8.1%, 3.2%,and 15.0% The equivalent compound annual rate is:

An investor has a $12,000 portfolio consisting of $7,000 in stock P with an expected return of20% and $5,000 in stock Q with an expected return of 10% What is the investor's expectedreturn on the portfolio?

A company reports its past six years' earnings growth at 10%, 14%, 12%, 10%, –10%, and12% The company's average compound annual growth rate of earnings is closest to:

Which of the following tools best captures the distribution of returns for a particular stock?

A) Scatter plot

B) Histogram

C) Heat map

Explanation

A histogram depicts the shape and range of a distribution of numerical data.

(Module 2.2, LOS 2.e)

The owner of a company has recently decided to raise the salary of one employee, who wasalready making the highest salary in the company, by 40% Which of the following value(s) is(are) expected to be affected by this raise?

(Module 2.3, LOS 2.g)

Given the following annual returns, what is the mean absolute deviation?

The mean absolute deviation is found by taking the mean of the absolute values of

deviations from the mean ( |15 – 3| + |2 – 3| + |5 – 3| + |-7 – 3| + |0 – 3|) / 5 = 5.60%

(Module 2.4, LOS 2.j)

Question #35 of 95 Question ID: 1456283

An analyst compiles the returns on Fund Q over the last four years:

Which of the following will result in the lowest measure of the mean return?

A) The arithmetic mean

B) The geometric mean

C) The harmonic mean

4

Which of the following statements about the frequency distribution shown below is leastaccurate?

Return Interval Frequency

> 5% to 10% 20

> 10% to 15% 30

> 15% to 20% 20

A) The cumulative absolute frequency of the fourth interval is 20

B) The relative frequency of the second return interval is 25%

C) The return intervals are mutually exclusive

Explanation

The cumulative absolute frequency of the fourth interval is 80, which is the sum of theabsolute frequencies from the first to the fourth intervals (Module 2.1, LOS 2.c)

The following annualized monthly return measures have been calculated for an investmentbased on its performance over the last 72 months

A winsorized mean is a technique for removing the distorting effects of outliers by

replacing them with less extreme values The arithmetic and geometric means are based

on all observations and therefore include the impact of outliers

(Module 2.3, LOS 2.h)

Monthly returns for a set of small cap stocks are 1.3%, 0.8%, 0.5%, 3.4%, -3.5%, -1.2%, 1.8%,2.1%, and 1.5% An analyst constructs a frequency distribution and a frequency polygonusing the following intervals: -4.0% to -2.0%, -2.0% to 0.0%, 0.0% to 2.0%, and 2.0% to 4.0%.Which of the following statements about these data presentations is least accurate?

A) The absolute frequency of the interval 0.0% to 2.0% is 5

B)A frequency polygon plots the midpoint of each interval on the horizontal axisand the absolute frequency of that interval on the vertical axis

C)The relative frequency of the interval -2.0% to 0.0% equals the relative

frequency of the interval 2.0% to 4.0%

Explanation

When completed, the frequency distribution table should look as follows:

Frequency Distribution of Monthly Small Cap Stock Returns

Interval Absolute Frequency Relative Frequency

If an analyst concludes that the distribution of a large sample of returns is positively skewed,which of the following relationships involving the mean, median, and mode is most likely?

A) Mean > median < mode

B) Mean > median > mode

C) Mean < median < mode

Explanation

For the positively skewed distribution, the mode is less than the median, which is less thanthe mean (Module 2.5, LOS 2.l)

In a frequency distribution histogram, the frequency of an interval is given by the:

A) height multiplied by the width of the corresponding bar

B) height of the corresponding bar

C) width of the corresponding bar

Explanation

In a histogram, intervals are placed on the horizontal axis, and frequencies are placed onthe vertical axis The frequency of a particular interval is given by the value on the verticalaxis, or the height of the corresponding bar

(Module 2.2, LOS 2.e)

An investor has the following assets:

$5,000 in bonds with an expected return of 8%

$10,000 in equities with an expected return of 12%

$5,000 in real estate with an expected return of 10%

What is the portfolio's expected return?

A) 10.00%

B) 10.50%

C) 11.00%

Expected return is the weighted average of the individual expected values The expectedreturn is: [(5,000) × (10.00) + (5,000) × (8.00) + (10,000) × (12.00)] / 20,000 = 10.50%

(Module 2.3, LOS 2.g)

The respective arithmetic mean and geometric mean returns of the following series of stockmarket returns are:

Which of the following statements concerning skewness is least accurate? A distributionwith:

A) skew equal to 1 is not symmetrical

B) negative skewness has a large number of outliers on its left side

C) positive skewness has a long left tail

Explanation

A distribution with positive skewness has long right tails.

(Module 2.5, LOS 2.l)

A distribution of returns that has a greater percentage of small deviations from the meanand a greater percentage of large deviations from the mean compared to a normal

a normal distribution

(Module 2.5, LOS 2.m)

If the historical mean return on an investment is 2.0%, the standard deviation is 8.8%, andthe risk free rate is 0.5%, what is the coefficient of variation (CV)?

The CV is a measure of risk per unit of mean return When ranking portfolios based on the

CV, a lower value is preferred to higher

(Module 2.4, LOS 2.j)

Question #46 of 95 Question ID: 1456289What are the median and the third quintile of the following data points, respectively?

9.2%, 10.1%, 11.5%, 11.9%, 12.2%, 12.8%, 13.1%, 13.6%, 13.9%, 14.2%, 14.8%,14.9%, 15.4%

(Module 2.4, LOS 2.i)

A portfolio's monthly returns follow a distribution with a kurtosis measure of 4.2 Relative to

a portfolio with normally distributed returns, this portfolio has a:

A)lower probability of extreme upside returns and higher chance of extreme

(Module 2.5, LOS 2.m)