PRMIA 8007 Exam Practice Test Instant Access

Question 1

A 95% confidence interval for a parameter estimate can be interpreted as follows:

AThe probability that the real value of the parameter is within this interval is 95%.

BThe probability that the real value of the parameter is outside this interval is 95%.

CThe probability that the estimated value of the parameter is within this interval is 95%.

DThe probability that the estimated value of the parameter is outside this interval is 95%.

Answer : A

Question 2

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

Answer : A

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

Answer : D

Question 4

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

Answer : A

Question 5

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

Answer : D

Question 6

When the errors in a linear regression show signs of positive autocorrelation, which of the statements below is true?

AThe regression coefficient will be too high and the standard error of the regression coefficient will be understated

BThe regression coefficient will be too low and the standard error of the regression coefficient will be overstated

CThe regression coefficient will be unbiased, but the standard error of the regression coefficient will be understated

DThe regression coefficient will be unbiased, but the standard error of the regression coefficient will be overstated

Answer : D

Question 7

Which of the following is consistent with the definition of a Type I error?

AThe probability of a Type I error is 100% minus the significance level

BA Type I error would have occurred if the performance of a stock was positively correlated with the performance of a hedge fund, but in a linear regression, the hypothesis of positive correlation was rejected

CA Type I error would have occurred if the performance of a stock was positively correlated with the performance of a hedge fund, but in a linear regression, the hypothesis of no correlation was rejected

DA Type I occurs whenever data series are serially correlated

Answer : B

PRMIA Mathematical Foundations of Risk Measurement ? 2015 Edition Exam Practice Test