GIT CS 7646 ML4T Exam 1

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

Correct answer: A

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

Correct answer: 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

Correct answer: A

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

Correct answer: A

Question 58: According to the movie, what happened in the second quarter of '07 that caused mortgage defaults to skyrocket? A) The adjustable rates on the mortgages kicked in B) The Federal Reserve raised interest rates C) Banks began issuing synthetic CDOs D) Lehman Brothers and Bear Stearns collapsed

Correct answer: A

Question 59: Which of the following methods is NOT a valid way of solving a reinforcement learning problem? A) Transition Iteration B) Value Iteration C) Q-Learning D) Policy Iteration

Correct answer: A

Question 67: To assess weights for portfolio that minimizes risk using Mean Variance Optimization technique, what are the inputs required ? A) Expected Return, Volatility, Covariance, Target return B) Expected Return, Volatility, Standard Deviation, Target return C) Momentum, Volatility, Standard Deviation, Mean D) Bollinger bands, Volatility, Standard Deviation, Target return

Correct answer: A

Question 69: Which of the following did Mark Baum (owner of Front Point Partners) do in the movie? A) Open up to his wife about his brother B) Sell his swaps when Venett could not convince him to buy more C) Discover that the rating agencies would correct the ratings for subprime mortgages D) Meet with an acquaintance from Moody's

Correct answer: A

Question 73: What is the root cause of 2008 financial crisis? A) hedge fund trading with derivatives B) increase in mortgage interest rate C) increase in oil price D) decrease in unemployment rate

Correct answer: A

Question 78: Suppose you use a butterfly strategy: buy a 105 call at 7.16 and a 115 call at 0.53, write two 110 calls at 2.73. What is the break-even price of the strategy? A) 107.23 B) 107.76 C) 110 D) 110.53

Correct answer: A

Question 80: Which version of the Efficient Market Hypothesis suggests that insider trading cannot be possible? A) Strong B) Semi-strong C) Weak D) All of the above

Correct answer: A

Question 88: If you believe in the weak form version of the Efficient Market Hypothesis, which of the following would you NOT be likely to consider valuable information? A) Stock volatility over the last month B) Insider knowledge of an impending CEO change C) The book value of the company D) Earnings report contents

Correct answer: A

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)

Correct answer: A

Question 97: Which of the following can be inferred by the weak form of the Efficient Market Hypothesis? A) Future prices of AAPL cannot be predicted by analyzing historical prices. B) Prices of AAPL will adjust rapidly to any new information about the company. C) Prices of AAPL reflect all knowledge about the company, public and private. D) Future prices for AAPL can be predicted accurately by analyzing historic prices.

Correct answer: A

Question 98: When thinking about trading stocks as a Reinforcement Learning problem. Which choice is defined as an action? A) Buy B) Holding Long C) Daily Returns D) Bollinger Value

Correct answer: A

Question 100: Which of the following are states in a trading reinforcement learning problem? (Looking for an S) A) Buying B) Holding Long C) Leverage D) Cumulative Return

Correct answer: B

Question 10: What does CDS stand for? A) Collateralized Debt Swap B) Credit Default Swap C) Collateralized Debt Security D) Credit Default Security

Correct answer: B

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

Correct answer: B

Question 16: Following statement is true or false: Hedge Funds cannot succeed if EMH applies. A) True B) False

Correct answer: B

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

Correct answer: B

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

Correct answer: B

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

Correct answer: B

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

Correct answer: B

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

Correct answer: 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.

Correct answer: 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.

Correct answer: B

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

Correct answer: B

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

Correct answer: B

Question 57: What is the correct sequence for the cycle describing the RL problem? A) Analyze, Remember, Act B) Sense, Think, Act C) Think, Sense, Act D) Remember, Act, Analyze,

Correct answer: B

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

Correct answer: B

Question 61: Which of the following are not assumptions of the Efficient Markets Hypothesis? A) New Information arrives randomly B) Small number of investors C) Prices adjust quickly D) Prices reflect all available information

Correct answer: B

Question 62: Which of the following is true about Markov Chain problems ? A) The sum of all the next states in reward function is 1. B) The sum of the all the next states in transition function is 1. C) The sum of all the next states in set S is 1. D) The sum of all the next action in set A is 1.

Correct answer: B

Question 70: Stock options can increase the of a portfolio, as the investor can keep more cash on hand up to the expiration date. A) value B) leverage C) riskiness D) stability

Correct answer: B

Question 75: Please select statements that are True: A) In Markov decision tree process the reward from applying action to the current state depends on the previous states and previous actions that were taken by the agent B) The end goal of the Markov decision problem is to find a policy that maximizes total rewards C) Agent can only receive one type of a reward at a time: either an immediate reward or a discounted future reward D) Transition function maps sets of actions into sets of rewards

Correct answer: B

Question 76: Which of these metrics are not used in the Bollinger Band calculation introduced in lecture? A) Standard Deviation B) Momentum C) Simple Moving Average D) Price

Correct answer: B

Question 92: If two portfolio managers have the same investment skills, which one you would prefer? A) The one who works in a famous company of the world's top 500, but with limited invest opportunities. B) The one who works in a very small company, but have many opportunities to invest C) Both are good candidates due to the same investment skills D) Above answers are wrong due to the lack of further information

Correct answer: B

Question 93: If two portfolio managers have the same investment skills, which one you would prefer? A) The one who works in a famous company of the world's top 500, but with limited invest opportunities. B) The one who works in a very small company, but have many opportunities to invest C) Both are good candidates due to the same investment skills D) Above answers are wrong due to the lack of further information

Correct answer: B

Question 12: Which of the following is not the keys of Grinold's fundamental law? A) Skill B) Performance C) Luck D) Breadth

Correct answer: 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

Correct answer: C

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

Correct answer: C

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

Correct answer: C

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

Correct answer: C

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

Correct answer: C

Question 30: What has the lowest risk ? A) Stocks B) Bonds C) Stocks and Bonds D) Precious Materials

Correct answer: 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

Correct answer: C

Question 32: What has the lowest risk for return? A) Stocks B) Bonds C) Stocks and Bonds D) Precious material

Correct answer: C

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

Correct answer: C

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

Correct answer: C

Question 52: Which statements is FALSE about "The Big Short"? A) A Collateralized debt obligation (CDO) can be made up of different types of assets and loans. B) Many Mortgage-Backed Securities (MBS) are also Collateralized debt obligations (CDOs). C) AAA tranches have higher risks than BBB tranches. D) Michael Burry made profits by purchasing Credit default swaps (CDS) from the banks and these banks paid him the full amount of the bond when the Mortgage-Backed Security (MBS) defaulted.

Correct answer: C

Question 54: Which statements is FALSE about "The Big Short"? A) A Collateralized debt obligation (CDO) can be made up of different types of assets and loans. B) Many Mortgage-Backed Securities (MBS) are also Collateralized debt obligations (CDOs). C) AAA tranches have higher risks than BBB tranches. D) Michael Burry made profits by purchasing Credit default swaps (CDS) from the banks and these banks paid him the full amount of the bond when the Mortgage-Backed Securities (MBS) defaulted.

Correct answer: C

Question 60: Which of the following are characteristics of technical analysis? i. price of stock ii. value of a company iii. volume of stock traded A) i only B) i and ii C) i and iii D) i, ii, and iii

Correct answer: C

Question 63: Why is a good idea to create a portfolio that combines assets with negative correlations? A) To get more "alpha" than any individual asset B) To maximize returns by shorting stocks C) To reduce portfolio volatility D) To balance weights equally among all assets

Correct answer: C

Question 66: The goal for reinforcement learning is to find a Policy PI that maps a state to an action that we should take and its goal is to find this pi such that it maximizes some future sum of the reward. Which of the following is the way that we calculate discount reward? Suppose n is a finite number, 0 < \lambda < 1, and r_i is the reward for the ith action. A) Sum_{i=1}^{Inf} r_i B) Sum_{i=1}^{n} r_i C) Sum_{i=1}^{Inf} \lambda^{i-1} r_i D) Sum_{i=1}^{n} \lambda^{i-1} r_i

Correct answer: C

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

Correct answer: C

Question 71: In the movie The Big Short, what does finally convince Mark Baum to start buying credit default swaps on mortgages? A) When Jared Vennet explained the problem using a Jenga tower B) After talking to Michael Burry over his findings on Mortgage bonds C) After investigating neighborhoods and people getting multiple mortgages D) When he talked to rating agencies about how they rated CDOs

Correct answer: C

Question 74: Identify the FALSE statement about the components that make up a Markov Decision Problem. A) States - a finite set of states that the process can occupy at a current time B) Actions - a finite set of actions that can be enacted given a state C) Observations - events observed that are by-products of the current state of the process D) Rewards - the motivation given for transitioning from the current state to the next state

Correct answer: C

Question 77: The current market price of XYZ is $ per share. An investor plan to purchase 1 XYZ 50 calls with $2 premium per share and 1 XYZ 50 puts with $2 premium per share. What is the breakeven points of this purchase: A) 46 and 52 B) 48 and 54 C) 46 and 54 D) 48 and 52

Correct answer: C

Question 79: What problem would be most effectively addressed by reinforcement learning? A) Forecasting the weather by analyzing instantaneous measurements B) Scoring wine based on graded taste features C) Using sensors to navigate an environment D) Recognizing a song after sampling a small portion of it

Correct answer: 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

Correct answer: C

Question 87: What is NOT correct regarding the Q-learning update rule? A) Alpha is learning rate, indicating the dependence of the new Q- value on the old one. B) We need to find the action that maximize the Q-value among all possible actions when calculating new Q-value. C) Discount and immediate reward of both past and future actions should be considered when calculating new Q-value. D) The discount factor is used to reduce the value of future rewards.

Correct answer: C

Question 89: The lowest possible Sharpe ratio of a portfolio that contains at least two stocks is: A) higher than the lowest Sharpe ratio of any one stock in the portfolio B) equal to the lowest Sharpe ratio of any one stock in the portfolio C) lower than the lowest Sharpe ratio of any one stock in the portfolio D) none of the above

Correct answer: C

Question 91: The goal of reinforcement learning is to find the optimal policy. What are possible outputs of a policy function? A) A single action that should be taken next when in a particular state B) A probability distribution over a set of actions C) A and B D) None of the above

Correct answer: C

Question 94: About Q-learning, which statement is wrong? A) Q-learning is a reinforcement learning technique used in machine learning. B) The goal of Q-learning is to learn a policy. C) It is designed to make future rewards worth more than immediate rewards. D) State and action are two key elements in Q-learning.

Correct answer: C

Question 95: Suppose your best friends is a CEO of a company, and you could always acquire the latest inside information of this company. But one day you find that you could NOT use this advantage to make profits. Which of the following statements about the efficient market hypothesis (EMH) is supported by your experience? A) The weak version of EMH is valid. B) The semi-strong version of EMH is valid. C) The strong version of EMH is valid. D) None of above

Correct answer: C

Question 96: Technical Analysis is most effective for... A) Making complex trading decisions B) Analyzing cash flow and book value C) Making simple trading decisions D) Making long-term trading decisions

Correct answer: C

Question 99: Increase in SMA(Simple Moving Average) over a period of time indicates: A) Increase in volatility of the stock for the time period B) Decrease in Stock price for the time period C) Increase in the Stock price for the time period D) No Change in stock price

Correct answer: C

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

Correct answer: D

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]

Correct answer: D

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

Correct answer: D

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

Correct answer: D

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

Correct answer: D

Question 53: What is Information Ratio? A) Sharpe Ratio of the Portfolio B) Mean of the excess return C) Market return plus excess return D) Sharpe Ratio of the excess return

Correct answer: D

Question 56: Assume beta represents the market return and alpha represents the residual return. Which answer below exactly contains the factors that Information Ratio is related to? A) std(beta), std(alpha), mean(alpha) B) mean(beta), std(beta), std(alpha) C) mean(beta), std(beta) D) mean(alpha), std(alpha)

Correct answer: D

Question 64: Reinforcement learning algorithm tries to (select one that applies) A) Find a policy pi that minimizes Transition function. B) Find a policy pi that minimizes Reward function. C) Find a policy pi that maximizes Transition function. D) Find a policy pi that maximizes Reward function.

Correct answer: D

Question 65: Which of the following choices is not an assumption made by the Efficient Market Hypothesis? A) There are a large number of investors B) Prices adjust quickly C) Prices reflect all available information D) The market can be beaten by efficient trading practices

Correct answer: D

Question 68: According to EMH, what type of analysis/analyses could provide excess returns for the semi-strong form? A) Technical Analysis B) Fundamental Analysis C) A and B D) Neither A or B

Correct answer: D

Question 81: Which of the following is not part of the Markov decision problems: A) Set of states S B) Set of actions A C) Transition function D) Value function

Correct answer: D

Question 83: If market is perfectly efficient, which of the followings will still be able to generate returns? A) High frequency traders B) Active portfolio managers C) Passive portfolio managers

Correct answer: D

Question 84: Which of the following is a not assumed as part of the Efficient Markets Hypothesis? A) The current price reflects all available information and quickly adjusts based on demand B) There are a large number of investors competing for gains C) New informationarrives constantly arrives and randomly D) The current price reflects all available information and slowly adjusts based on demand

Correct answer: D

Question 85: Which one of the following statements is NOT correct? A) Stock options are sold by one party to another. B) The option buyer has the right to buy or sell a stock at a specific price. C) Stock options will expire if the buyers don't exercised. D) Both American options and European options can be exercised any time before the expiration date.

Correct answer: D

Question 90: The Fundamental Law of Portfolio management states which of the following: A) Portfolio performance increases as skill increases B) Portfolio performance increases as trading opportunities increases C) High portfolio performance can only be guaranteed through diversification D) Both (A) and (B)

Correct answer: D

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

Correct answer: D

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.

Correct answer: A

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.

Correct answer: A

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

Correct answer: A

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

Correct answer: A

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

Correct answer: A

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)

Correct answer: A