QUESTION: 985

You are examining a special group of 5 stock market indices. Of these 5, the returns were 4%, 8%, 12%, 16%, and 10%. What is the population variance of this group of stock market indices?

10%.
16%%.
10%%.
16%.

Answer(s): B

Explanation:

The population variance is equal to the sum of the squared differences between each population member and the population mean, divided by the number of items in the population. In this case, wehave a mean of 10%.
The first squared difference will be (4% - 10%)^2 = 0.0036. The others will be 0.0004, 0.0004, 0.0036, and 0.
The sum of these squared differences is 0.008, and divided by 5, we get 0.0016 = 16%%.

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QUESTION: 986

An investment of $100 grows in three years to $221. The investor observes that the annual arithmetic rate of return and the geometric rate of return were the same over this period. The annual arithmetic rate of return must be ________.

30.26%
23.93%
40.33%
24.32%
27.84%

Answer(s): A

Explanation:

If the annual geometric rate of return is r, then 100 * (1 + r)^3 = 221. This gives r = 30.26%. Note that the only way the mean will be equal to the geometric mean if every year, the stock experienced a return of 30.26% per year.

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QUESTION: 987

If all the data points in a regression lie exactly on a straight line, which of the following is/are true?

The observed values of the dependent variable will equal the predicted values.
II. The R-square will equal 100%.
III. The slope coefficient will be 1.
IV. The residual error will be 100%.
I & II
III only
II only
IV only
I only
I & III
I, II & III
III & IV

Answer(s): A

Explanation:

Since there is no error in the regression, the R-square equals 1 (100%). The slope coefficient can be any real number, not necessarily 1. The residual error will be zero.

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QUESTION: 988

Which of the following answers is false in reference to confidence levels and/or tests of significance? Choose the best answer.

All else equal, the confidence interval for a test with a 5% significance level is larger than the confidence interval for a test with a 1% significance level.
The Greek letter alpha is used to denote the probability of a Type I error.
The significance level used in hypothesis testing is typically 0.10, 0.05, or 0.01.
In most hypothesis testing, the power of a test is equal to (1 - the significance level).
The confidence level can be found by (1 - alpha).
More than one of these answers is false.

Answer(s): A

Explanation:

The confidence interval for a test with a 5% level of significance is smaller than the confidence interval for a 1% significance level. Remember that the significance level is typically set equal to the probability of a Type I error, which is defined as the act of incorrectly rejecting the null hypothesis. In hypothesis testing, the significance level is denoted by the Greek letter alpha. As the level of confidence increases, then the confidence interval will increase. This will be mirrored by a decrease in the alpha coefficient (i.e. the probability of a Type I error) for the hypothesis test. The remaining answers are correct.

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QUESTION: 985

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QUESTION: 986

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QUESTION: 987

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QUESTION: 988

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