Suppose that events A, B, C, and D are independent, and have probabilities of 0.25, 0.50, 0.40, and 0.30, respectively. What is P(ABCD)?
Answer(s): C
If events are independent, then the joint probability of them occurring together is just the product of the individual probabilities. So P(ABCD) = 0.25 * 0.50 * 0.40 * 0.30 = 1.5%.
If r = .65, what does the coefficient of determination equal?
Answer(s): A
The coefficient of determination is r-squared.
A financial economist runs the following regression: Demand for cars = alpha + beta*income level + error In this regression, the demand for cars is ________ variable and the income level is ________ variable.
Answer(s): B
The left-hand side variable is the dependent variable since its behavior in the equation is being explained by the right-hand side variable, which is the independent variable. Note, however, that this does not imply any kind of causal relationship in general.
What is the measure that indicates how precise a prediction of Y is based on X or, conversely, how inaccurate the prediction might be?
This refers to the standard error of estimates.
You are examining a portfolio composed of 1/3 money-market investments, 1/3 bonds, and 1/3 stocks. Last year, the return on the money-market investments was 5%; the return on bonds was 15%, and the return on stocks was -2%. What is the portfolio's weighted-average return?
Answer(s): D
The portfolio weighted-average return is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight in the portfolio of the ith asset, and X_i is the investment return of the ith asset. Here, we get a weighted mean of 1/3 * 0.05 + 1/3 * 0.15 + 1/3 * -0.02 = 6.00%. Note that because of the equal weighting, this is the same as the arithmetic return: (5% + 15% - 2%) / 3 = 18% / 3 = 6%.
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