Qbank: All Quantitative Methods: Basic Concepts

Nortel Industries has a preferred stock outstanding that pays (fixed) annual dividends of $3.75 a share. If an investor wants to earn a rate of return of 8.5%, how much should he be willing to pay for a share of Nortel preferred stock? A) $44.12. B) $42.10. C) $31.88.

A) $44.12. PV = 3.75 ÷ 0.085 = $44.12.

Given the following probability distribution, find the covariance of the expected returns for stocks A and B. (couldnt input data) A) 0.00174. B) 0.00109. C) 0.00032.

A) 0.00174 Find the weighted average return for each stock. Stock A: (0.10)(-5) + (0.30)(-2) + (0.50)(10) + (0.10)(0.31) = 7%. Stock B: (0.10)(4) + (0.30)(8) + (0.50)(10) + (0.10)(0.12) = 9%. Next, multiply the differences of the two stocks by each other, multiply by the probability of the event occurring, and sum. This is the covariance between the returns of the two stocks. [(-0.05 − 0.07) × (0.04 − 0.09)] (0.1) + [(-0.02 − 0.07) × (0.08 − 0.09)](0.3) + [(0.10 − 0.07) × (0.10 − 0.09)](0.5) + [ (0.31 − 0.07) × (0.12 − 0.09)](0.1) = 0.0006 + 0.00027 + 0.00015 + 0.00072 = 0.00174.

If two fair coins are flipped and two fair six-sided dice are rolled, all at the same time, what is the probability of ending up with two heads (on the coins) and two sixes (on the dice)? A) 0.0069. B) 0.8333. C) 0.4167.

A) 0.0069. For the four independent events defined here, the probability of the specified outcome is 0.5000 × 0.5000 × 0.1667 × 0.1667 = 0.0069.

The following table summarizes the results of a poll taken of CEO's and analysts concerning the economic impact of a pending piece of legislation: Group Think it will have a positive impact Think it will have a negative impact Total CEO's 40 30 70 Analysts 70 60 130 110 90 200 What is the probability that a randomly selected individual from this group will be an analyst that thinks that the legislation will have a positive impact on the economy? A) 0.35. B) 0.45. C) 0.30.

A) 0.35. 70 analysts / 200 individuals = 0.35.

The covariance of returns on two investments over a 10-year period is 0.009. If the variance of returns for investment A is 0.020 and the variance of returns for investment B is 0.033, what is the correlation coefficient for the returns? A) 0.350. B) 0.444. C) 0.687.

A) 0.350. The correlation coefficient is: Cov(A,B) / [(Std Dev A)(Std Dev B)] = 0.009 / [(√0.02)(√0.033)] = 0.350.

On January 1, Jonathan Wood invests $50,000. At the end of March, his investment is worth $51,000. On April 1, Wood deposits $10,000 into his account, and by the end of June, his account is worth $60,000. Wood withdraws $30,000 on July 1 and makes no additional deposits or withdrawals the rest of the year. By the end of the year, his account is worth $33,000. The time-weighted return for the year is closest to: A) 10.4%. B) 7.0%. C) 5.5%.

A) 10.4%. January - March return = 51,000 / 50,000 − 1 = 2.00% April - June return = 60,000 / (51,000 + 10,000) − 1 = -1.64% July - December return = 33,000 / (60,000 − 30,000) − 1 = 10.00% Time-weighted return = [(1 + 0.02)(1 − 0.0164)(1 + 0.10)] − 1 = 0.1036 or 10.36%

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) 10.50%. B) 11.00%. C) 10.00%.

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

Twenty students take an exam. The percentages of questions they answer correctly are ranked from lowest to highest as follows: 32 49 57 58 61 62 64 66 67 67 68 69 71 72 72 74 76 80 82 83 In a frequency distribution from 30% to 90% that is divided into six equal-sized intervals, the absolute frequency of the sixth interval is:

A) 2. B) 4. C) 3. The intervals are 30% ≤ x < 40%, 40% ≤ x < 50%, 50% ≤ x < 60%, 60% ≤ x < 70%, 70% ≤ x < 80%, and 80% ≤ x ≤ 90%. There are 3 scores in the range 80% ≤ x ≤ 90%.

An investor has two stocks, Stock R and Stock S in her portfolio. Given the following information on the two stocks, the portfolio's standard deviation is closest to: σR = 34% σS = 16% rR,S = 0.67 WR = 80% WS = 20% A) 29.4%. B) 8.7%. C) 7.8%.

A) 29.4%. The formula for the standard deviation of a 2-stock portfolio is: s = [WA2sA2 + WB2sB2 + 2WAWBsAsBrA,B]1/2 s = [(0.82 × 0.342) + (0.22 × 0.162) + (2 × 0.8 × 0.2 × 0.34 × 0.16 × 0.67)]1/2 = [0.073984 + 0.001024 + 0.0116634]1/2 = 0.08667141/2 = 0.2944, or approximately 29.4%.

What is the yield on a discount basis for a Treasury bill priced at $97,965 with a face value of $100,000 that has 172 days to maturity? A) 4.26%. B) 3.95%. C) 2.04%.

A) 4.26%. ($2,035 / $100,000) × (360 / 172) = 0.04259 = 4.26% = bank discount yield.

Vega research has been conducting investor polls for Third State Bank. They have found the most investors are not willing to tie up their money in a 1-year (2-year) CD unless they receive at least 1.0% (1.5%) more than they would on an ordinary savings account. If the savings account rate is 3%, and the bank wants to raise funds with 2-year CDs, the yield must be at least: A) 4.5%, and this represents a discount rate. B) 4.5%, and this represents a required rate of return. C) 4.0%, and this represents a required rate of return.

A) 4.59%. (1 + 0.045 / 12)12 − 1 = 1.0459 − 1 = 0.0459.

An economist estimates a 60% probability that the economy will expand next year. The technology sector has a 70% probability of outperforming the market if the economy expands and a 10% probability of outperforming the market if the economy does not expand. Given the new information that the technology sector will not outperform the market, the probability that the economy will not expand is closest to: A) 67%. B) 33%. C) 54%.

A) 67%. Using the new information we can use Bayes" formula to update the probability. P(economy does not expand | tech does not outperform) = P(economy does not expand and tech does not outperform) / P(tech does not outperform). P(economy does not expand and tech does not outperform) = P(tech does not outperform | economy does not expand) × P(economy does not expand) = 0.90 × 0.40 = 0.36. P(economy does expand and tech does not outperform) = P(tech does not outperform | economy does expand) × P(economy does expand) = 0.30 × 0.60 = 0.18. P(economy does not expand) = 1.00 − P(economy does expand) = 1.00 − 0.60 = 0.40. P(tech does not outperform | economy does not expand) = 1.00 − P(tech does outperform | economy does not expand) = 1.00 − 0.10 = 0.90. P(tech does not outperform) = P(tech does not outperform and economy does not expand) + P(tech does not outperform and economy does expand) = 0.36 + 0.18 = 0.54. P(economy does not expand | tech does not outperform) = P(economy does not expand and tech does not outperform) / P(tech does not outperform) = 0.36 / 0.54 = 0.67.

According to Chebyshev's Inequality, for any distribution, what is the minimum percentage of observations that lie within three standard deviations of the mean? A) 89%. B) 94%. C) 75%.

A) 89%. According to Chebyshev's Inequality, for any distribution, the minimum percentage of observations that lie within k standard deviations of the distribution mean is equal to: 1 - (1 / k2). If k = 3, then the percentage of distributions is equal to 1 - (1 / 9) = 89%.

An investor makes 48 monthly payments of $500 each beginning today into an account that will have a value of $29,000 at the end of four years. The stated annual interest rate is closest to: A) 9.00%. B) 9.50%. C) 10.00%.

A) 9.00%. Because this is an annuity due (payments at the start of each period) the calculator must first be set to BGN mode. N = 48; PMT = 500; FV = -29,000; PV = 0; CPT I/Y = 0.7532 This percentage is a monthly rate because the time periods were entered as 48 months. It must be converted to a stated annual percentage rate (APR) by multiplying by the number of compounding periods per year: 0.7532 × 12 = 9.04%.

If two events are independent, the probability that they both will occur is: A) Cannot be determined from the information given. B) 0.50. C) 0.00.

A) Cannot be determined from the information given. If two events are independent, their probability of their joint occurrence is computed as follows: P(A∩B) = P(A) × P(B). Since we are not given any information on the respective probabilities of A or B, there is not enough information.

Given Cov(X,Y) = 1,000,000. What does this indicate about the relationship between X and Y? A) Only that it is positive. B) It is weak and positive. C) It is strong and positive.

A) Only that it is positive. A positive covariance indicates a positive linear relationship but nothing else. The magnitude of the covariance by itself is not informative with respect to the strength of the relationship.

Which of the following statements about counting methods is least accurate? A) The combination formula determines the number of different ways a group of objects can be drawn in a specific order from a larger sized group of objects. B) The labeling formula determines the number of different ways to assign a given number of different labels to a set of objects. C) The multiplication rule of counting is used to determine the number of different ways to choose one object from each of two or more groups.

A) The combination formula determines the number of different ways a group of objects can be drawn in a specific order from a larger sized group of objects. The permutation formula is used to find the number of possible ways to draw r objects from a set of n objects when the order in which the objects are drawn matters. The combination formula ("n choose r") is used to find the number of possible ways to draw r objects from a set of n objects when order is not important. The other statements are accurate.

Which probability rule determines the probability that two events will both occur? A) The multiplication rule. B) The total probability rule. C) The addition rule.

A) The multiplication rule. The multiplication rule is used to determine the joint probability of two events. The addition rule is used to determine the probability that at least one of two events will occur. The total probability rule is utilized when trying to determine the unconditional probability of an event.

In order to calculate the net present value (NPV) of a project, an analyst would least likely need to know the: A) internal rate of return (IRR) of the project. B) opportunity cost of capital for the project. C) timing of the expected cash flows from the project.

A) internal rate of return (IRR) of the project. The NPV is calculated using the opportunity cost, discount rate, expected cash flows, and timing of the expected cash flows from the project. The project's IRR is not used to calculate the NPV.

Given: $1,000 investment, compounded monthly at 12% find the future value after one year. A) $1,120.00. B) $1,126.83. C) $1,121.35.

B) $1,126.83. Divide the interest rate by the number of compound periods and multiply the number of years by the number of compound periods. I = 12 / 12 = 1; N = (1)(12) = 12; PV = 1,000.

Marc Schmitz borrows $20,000 to be paid back in four equal annual payments at an interest rate of 8%. The interest amount in the second year's payment would be: A) $6038.40. B) $1244.90. C) $1116.90.

B) $1244.90. C) $1116.90. With PV = 20,000, N = 4, I/Y = 8, computed Pmt = 6,038.42. Interest (Yr1) = 20,000(0.08) = 1600. Interest (Yr2) = (20,000 − (6038.42 − 1600))(0.08) = 1244.93

Paul Kohler inherits $50,000 and deposits it immediately in a bank account that pays 6% interest. No other deposits or withdrawals are made. In two years, what will be the account balance assuming monthly compounding? A) $50,500. B) $56,400. C) $53,100.

B) $56,400. To compound monthly, remember to divide the interest rate by 12 (6%/12 = 0.50%) and the number of periods will be 2 years times 12 months (2 × 12 = 24 periods). The value after 24 periods is $50,000 × 1.00524 = $56,357.99. The problem can also be solved using the time value of money functions: N = 24; I/Y = 0.5; PMT = 0; PV = 50,000; CPT FV = $56,357.99.

An investor purchases a 10-year, $1,000 par value bond that pays annual coupons of $100. If the market rate of interest is 12%, what is the current market value of the bond? A) $1,124. B) $887. C) $950.

B) $887. Note that bond problems are just mixed annuity problems. You can solve bond problems directly with your financial calculator using all five of the main TVM keys at once. For bond-types of problems the bond's price (PV) will be negative, while the coupon payment (PMT) and par value (FV) will be positive. N = 10; I/Y = 12; FV = 1,000; PMT = 100; CPT → PV = -886.99.

Given: an 11% annual rate compounded quarterly for 2 years; compute the future value of $8,000 today. A) $8,962. B) $9,939. C) $9,857.

B) $9,939. Divide the interest rate by the number of compound periods and multiply the number of years by the number of compound periods. I = 11 / 4 = 2.75; N = (2)(4) = 8; PV = 8,000.

A very large company has twice as many male employees relative to female employees. If a random sample of four employees is selected, what is the probability that all four employees selected are female? A) 0.3333. B) 0.0123. C) 0.0625.

B) 0.0123. Since there are twice as many male employees to female employees, P(male) = 2/3 and P(female) = 1/3. Therefore, the probability of 4 "successes" = (0.333)4 = 0.0123.

The mean and standard deviation of returns for Stock A is represented below. Arithmetic Mean Standard Deviation 20% 8% The coefficient of variation of Stock A is: A) 3.00 B) 0.40 C) 2.50

B) 0.40 CV = Standard Deviation / Mean = (8 / 20) = 0.4

The events Y and Z are mutually exclusive and exhaustive: P(Y) = 0.4 and P(Z) = 0.6. If the probability of X given Y is 0.9, and the probability of X given Z is 0.1, what is the unconditional probability of X?

B) 0.42. Because the events are mutually exclusive and exhaustive, the unconditional probability is obtained by taking the sum of the two joint probabilities: P(X) = P(X | Y) × P(Y) + P(X | Z) × P(Z) = 0.4 × 0.9 + 0.6 × 0.1 = 0.42.

Joe Mayer, CFA, projects that XYZ Company's return on equity varies with the state of the economy in the following way: State of Economy Probability of Occurrence Company Returns Good .20 20% Normal .50 15% Poor .30 10% The standard deviation of XYZ's expected return on equity is closest to: A) 1.5%. B) 3.5%. C) 12.3%.

B) 3.5%. In order to calculate the standard deviation of the company returns, first calculate the expected return, then the variance, and the standard deviation is the square root of the variance. The expected value of the company return is the probability weighted average of the possible outcomes: (0.20)(0.20) + (0.50)(0.15) + (0.30)(0.10) = 0.145. The variance is the sum of the probability of each outcome multiplied by the squared deviation of each outcome from the expected return: (0.2)(0.20 - 0.145)2 + (0.5)(0.15 - 0.145)2 + (0.3)(0.1-0.145)2 = 0.000605 + 0.0000125 + 0.0006075 = 0.001225. The standard deviation is the square root of 0.001225 = 0.035 or 3.5%.

A local bank advertises that it will pay interest at the rate of 4.5%, compounded monthly, on regular savings accounts. What is the effective rate of interest that the bank is paying on these accounts? A) 4.59%. B) 4.65%. C) 4.50%.

B) 4.5%, and this represents a required rate of return. Since we are taking the view of the minimum amount required to induce investors to lend funds to the bank, this is best described as a required rate of return. Based upon the numerical information, the rate must be 4.5% (= 3.0 + 1.5).

Use the following probability distribution to calculate the standard deviation for the portfolio. State of the Economy Probability Return on Portfolio Boom 0.30; 15% Bust 0.70; 3% A) 6.5%. B) 5.5%. C) 6.0%.

B) 5.5%. [0.30 × (0.15 − 0.066)2 + 0.70 × (0.03 − 0.066)2]1/2 = 5.5%.

The following table summarizes the availability of trucks with air bags and bucket seats at a dealership. Bucket Seats No Bucket Seats Total Air Bags 75 50 125 No Air Bags 35 60 95 Total 110 110 220 What is the probability of selecting a truck at random that has either air bags or bucket seats? A) 34%. B) 73%. C) 107%.

B) 73%. The addition rule for probabilities is used to determine the probability of at least one event among two or more events occurring. The probability of each event is added and the joint probability (if the events are not mutually exclusive) is subtracted to arrive at the solution. P(air bags or bucket seats) = P(air bags) + P(bucket seats) − P(air bags and bucket seats) = (125 / 220) + (110 / 220) − (75 / 220) = 0.57 + 0.50 − 0.34 = 0.73 or 73%. Alternative: 1 − P(no airbag and no bucket seats) = 1 − (60 / 220) = 72.7%

Which of the following sets of data is most accurately described as a sample? A) Year-end assets under management for each mutual fund registered with a securities regulator. B) Annual returns on a an index of common stocks over a recent 10-year period. C) Years of higher education of the portfolio managers at a mutual fund.

B) Annual returns on a an index of common stocks over a recent 10-year period. Historical returns on an index may be viewed as a sample from the population of all possible return outcomes. For this reason, when we calculate descriptive statistics of historical returns such as their standard deviation, we treat the data as a sample rather than a population. The other two choices each include all the outcomes for the variable described.

As the number of compounding periods increases, what is the effect on the EAR? EAR: A) does not increase. B) increases at a decreasing rate. C) increases at an increasing rate.

B) increases at a decreasing rate. There is an upper limit to the EAR as the frequency of compounding increases. In the limit, with continuous compounding the EAR = eAPR -1. Hence, the EAR increases at a decreasing rate.

In a positively skewed distribution, the: A) median equals the mean. B) mean is greater than the median. C) mean is less than the median.

B) mean is greater than the median In a right-skewed distribution, there are large positive outliers. These outliers increase the mean of the distribution but have little effect on the median. Therefore, the mean is greater than the median.

Given the following set of data: 17, 3, 13 , 3, 5, 9, 8 The value 8 is most accurately described as the: A) mean. B) median. C) mode.

B) median. Median = middle of distribution = 8 (middle number); Mean = (3 + 3 + 5 + 8 + 9 + 13 + 17) / 7 = 8.28; Mode = most frequent observation = 3.

The First State Bank is willing to lend $100,000 for 4 years at a 12% rate of interest, with the loan to be repaid in equal semi-annual payments. Given the payments are to be made at the end of each 6-month period, how much will each loan payment be? A) $25,450. B) $32,925. C) $16,104.

C) $16,104. N = 4 × 2 = 8; I/Y = 12/2 = 6; PV = -100,000; FV = 0; CPT → PMT = 16,103.59.

Renee Fisher invests $2,000 each year, starting one year from now, in a retirement account. If the investments earn 8% or 10% annually over 30 years, the amount Fisher will accumulate is closest to: 8% 10% A) $225,000 $360,000 B) $245,000 $360,000 C) $225,000 $330,000

C) $225,000 $330,000 N = 30; I/Y = 8; PMT = -2,000; PV = 0; CPT FV = 226,566.42 N = 30; I/Y = 10; PMT = -2,000; PV = 0; CPT FV = 328,988.05

Compute the present value of a perpetuity with $100 payments beginning four years from now. Assume the appropriate annual interest rate is 10%. A) $1000. B) $683. C) $751.

C) $751. Compute the present value of the perpetuity at (t = 3). Recall, the present value of a perpetuity or annuity is valued one period before the first payment. So, the present value at t = 3 is 100 / 0.10 = 1,000. Now it is necessary to discount this lump sum to t = 0. Therefore, present value at t = 0 is 1,000 / (1.10)3 = 751.

How much would the following income stream be worth assuming a 12% discount rate? $100 received today. $200 received 1 year from today. $400 received 2 years from today. $300 received 3 years from today. A) $1,112.44. B) $721.32. C) $810.98.

C) $810.98 N i FV PV 0 12 100 100.00 1 12 200 178.57 2 12 400 318.88 3 12 300 213.53 810.98

Which of the following sets of numbers does NOT meet the requirements for a set of probabilities? A) (0.50, 0.50). B) (0.10, 0.20, 0.30, 0.40). C) (0.10, 0.20, 0.30, 0.40, 0.50).

C) (0.10, 0.20, 0.30, 0.40, 0.50). A set of probabilities must sum to one.

A very large company has equal amounts of male and female employees. If a random sample of four employees is selected, what is the probability that all four employees selected are female? A) 0.1600 B) 0.0256 C) 0.0625.

C) 0.0625. Each employee has equal chance of being male or female. Hence, probability of 4 "successes" = (0.5)4 = 0.0625

The following data points are observed returns. 4.2%, 6.8%, 7.0%, 10.9%, 11.6%, 14.4%, 17.0%, 19.0%, 22.5% What return lies at the 70th percentile (70% of returns lie below this return)? A) 19.0%. B) 14.4%. C) 17.0%.

C) 17.0%. With 9 observations, the location of the 70th percentile is (9 + 1)(70 / 100) = 7. The seventh observation in ascending order is 17.0%.

There is a 40% probability that the economy will be good next year and a 60% probability that it will be bad. If the economy is good, there is a 50 percent probability of a bull market, a 30% probability of a normal market, and a 20% probability of a bear market. If the economy is bad, there is a 20% probability of a bull market, a 30% probability of a normal market, and a 50% probability of a bear market. What is the joint probability of a good economy and a bull market? A) 12%. B) 50%. C) 20%

C) 20%. Joint probability is the probability that both events, in this case the economy being good and the occurrence of a bull market, happen at the same time. Joint probability is computed by multiplying the individual event probabilities together: 0.40 × 0.50 = 0.20 or 20%.

A recent ad for a Roth IRA includes the statement that if a person invests $500 at the beginning of each month for 35 years, they could have $1,000,000 for retirement. Assuming monthly compounding, what annual interest rate is implied in this statement? A) 6.988%. B) 7.625%. C) 7.411%.

C) 7.411%. Solve for an annuity due with a future value of $1,000,000, a number of periods equal to (35 × 12) = 420, payments = -500, and present value = 0. Solve for i. i = 0.61761 × 12 = 7.411% stated annually. Don't forget to set your calculator for payments at the beginning of the periods. If you don't, you'll get 7.437%.

Calabash Crab House is considering an investment in mutually exclusive kitchen-upgrade projects with the following cash flows: Project A Project B Initial Year -$10,000 -$9,000 Year 1 2,000 200 Year 2 5,000 -2,000 Year 3 8,000 11,000 Year 4 8,000 15,000 Assuming Calabash has a 12.5% cost of capital, which of the following investment decisions is most appropriate? A) Accept both projects because they both have positive net present values. B) Accept Project A because its internal rate of return is higher than that of Project B. C) Accept Project B because its net present value is higher than that of Project A.

C) Accept Project B because its net present value is higher than that of Project A When net present value (NPV) and internal rate of return (IRR) give conflicting project rankings, NPV is the most appropriate method for deciding between mutually exclusive projects. Here, the NPV of project A is $6,341 and the NPV of Project B is $6,688. Both NPVs are positive, so Calabash should select the Project B because of its higher NPV.

Which of the following statements about statistical concepts is least accurate? A) For any distribution, based on Chebyshev's Inequality, 75% of the observations lie within ±2 standard deviations from the mean. B) The coefficient of variation is useful when comparing dispersion of data measured in different units or having large differences in their means. C) For a normal distribution, only 95% of the observations lie within ±3 standard deviations from the mean

C) For a normal distribution, only 95% of the observations lie within ±3 standard deviations from the mean. For a normal distribution, 95% of the observations lie within ±2 standard deviations of the mean while 99% of the observations lie within plus or minus three standard deviations of the mean. Both remaining statements are true. Note that 75% of observations for any distribution lie within ±2 standard deviations of the mean using Chebyshev's inequality.

A distribution with a mean that is less than its median most likely: A) has negative excess kurtosis. B) is positively skewed. C) is negatively skewed.

C) is negatively skewed. A distribution with a mean that is less than its median is a negatively skewed distribution. A negatively skewed distribution is characterized by many small gains and a few extreme losses. Note that kurtosis is a measure of the peakedness of a return distribution.

For the task of arranging a given number of items without any sub-groups, this would require: A) the permutation formula. B) the labeling formula. C) only the factorial function.

C) only the factorial function. The factorial function, denoted n!, tells how many different ways n items can be arranged where all the items are included.

Johnson Inc. manages a growth portfolio of equity securities that has had a mean monthly return of 1.4% and a standard deviation of returns of 10.8%. Smith Inc. manages a blended equity and fixed income portfolio that has had a mean monthly return of 1.2% and a standard deviation of returns of 6.8%. The mean monthly return on Treasury bills has been 0.3%. Based on the Sharpe ratio, the: A) Johnson and Smith portfolios have exhibited the same risk-adjusted performance. B) performance of the Johnson portfolio is preferable to the performance of the Smith portfolio. C) performance of the Smith portfolio is preferable to the performance of the Johnson portfolio

C) performance of the Smith portfolio is preferable to the performance of the Johnson portfolio The Sharpe ratio for the Johnson portfolio is (1.4 − 0.3)/10.8 = 0.1019. The Sharpe ratio for the Smith portfolio is (1.2 − 0.3)/6.8 = 0.1324. The Smith portfolio has the higher Sharpe ratio, or greater excess return per unit of risk.

Which one of the following alternatives best describes the primary use of descriptive statistics? Descriptive statistics are used to: A) arrive at estimates regarding a large set of data regarding the statistical characteristics of a smaller sample. B) obtain data about the characteristics of any data set that can be used to assess the likelihood of the occurrence of future events. C) summarize important characteristics of large data sets.

C) summarize important characteristics of large data sets. Descriptive statistics are used mainly to summarize important characteristics of large data sets.

What is the main difference between descriptive statistics and inferential statistics? Descriptive statistics are: A) used to make forecasts about the likelihood of upcoming events while inferential statistics are used to summarize any data set. B) used to summarize data while inferential statistics are used to obtain precise information about a large data set. C) used to summarize a large data set while inferential statistics involves procedures used to make forecasts or judgments about a large data set by examining a smaller sample.

C) used to summarize a large data set while inferential statistics involves procedures used to make forecasts or judgments about a large data set by examining a smaller sample. Descriptive statistics are used to summarize a large data set while inferential statistics are based on procedures used to make forecasts or judgments about a large data set by examining a smaller set of data.

John is getting a $25,000 loan, with an 8% annual interest rate to be paid in 48 equal monthly installments. If the first payment is due at the end of the first month, the principal and interest values for the first payment are closest to: Principal Interest A) $443.65 $200.00 B) $410.32 $200.00 C) $443.65 $166.67

Calculate the payment first: N = 48; I/Y = 8/12 = 0.667; PV = 25,000; FV = 0; CPT PMT = 610.32. Interest = 0.006667 × 25,000 = $166.67; Principal = 610.32 - 166.67 = $443.65 .

The owner of a company has recently decided to raise the salary of one employee, who was already making the highest salary in the company, by 40%. Which of the following value(s) is (are) expected to be affected by this raise? A) median only. B) mean and median only. C) mean only.

Mean is affected because it is the sum of all values / number of observations. Median is not affected as it the midpoint between the top half of values and the bottom half of values.