An investor purchases a T‐bill for $940 when its money market yield is 6.2% and there are 120 days left to maturity. The HPY and EAY for the T‐bill are closest to:

An analyst estimates that the monthly mean return on a sample of 50 U.S. stocks is 6% with a variance of 72.25. The standard error of the sample mean is closest to:

1.20.

1212Standard error =

If a two-tailed hypothesis test has a 5% probability of rejecting the null hypothesis when the null is true, it is most likely that the:

confidence level of the test is 95%.

Rejecting the null hypothesis when it is true is a Type I error. The probability of a Type I error is the significance level of the test and one minus the significance level is the confidence level. The power of a test is one minus the probability of a Type II error, which cannot be calculated from the information given.

An investor purchased a $10,000, 5-year corporate note one year ago for $10,440. The note pays an annual coupon of $600. Over the past year, the note’s annual yield-to-maturity has dropped by 1%. What total return did the investor earn over the year?

8.5%.

1212First, find the yield on the note at time of purchase. The appropriate calculator steps are:
PV =-10,440; FV = 10,000; PMT = 600; N = 5; CPT -> I/Y = 4.9842%. Next, value the note at a yield of 3.9842% with four years to maturity.
FV = 10,000; PMT = 600; N = 4; I/Y = 3.9842; CPT -> PV = 10,731,99.
Finally, calculate the holding period return. The formula is:

If the probability of success in a binomial experiment is 0.75, the binomial distribution would most likely be:

Left‐skewed.

If the probability of success in a binomial experiment is greater than 0.5, the binomial distribution would be left‐skewed (i.e., have a long tail on the left).

Which of the following measurement scales provides the least information?

Nominal.

From least to most information, the ordering of measurements scales is nominal, ordinal, interval, and ratio.

Which of the following statements about hypothesis testing is most accurate?

Rejecting a true null hypothesis is a Type I error.

1212Type I error is rejecting the null hypothesis when it is true. The power of a test is the probability of rejecting the null hypothesis when it is false.

: X # 0 indicates a two-tailed test, while

: X < 0 or HA: X > 0 indicates a one-tailed test.

For a skewed distribution that has excess kurtosis, the minimum percentage of the distribution within three standard deviations of the mean is closest to:

89%.

Chebyshev's inequality holds regardless of the shape of the distribution. For any k > 1, the minimum percentage of the distribution within k standard deviations of the mean is 1 − 1/k . Thus, for 3 standard deviations, the percentage is ≥ 1 − 1/9 = 89%.

The joint probability distribution for the return of two retail stocks, A-Marts and Shops R Us, is provided below. The covariance between returns for A-Marts and Shops R Us is:

at least 0, but less than 0.01.

To calculate the covariance, you first must calculate the expected returns (means) for each stock: Expected return for A-Marts: 0.35(0.20) + 0.50(0.04) + 0.15(–0.20) = 0.06
Expected return for Shops R Us: 0.35(0.10) + 0.50(0.02) + 0.15(–0.10) = 0.03
The covariance is the weighted average of the cross-products:
Covariance = 0.35(0.20 − 0.06)(0.10 − 0.03) + 0.50(0.04 − 0.06)(0.02 − 0.03) + 0.15(–0.20 − 0.06)(–0.10 − 0.03)
Covariance = 0.35(0.14)(0.07) + 0.50(–0.02)(–0.01) + 0.15(–0.26)(–0.13) = 0.0086

Given the observations 45, 20, 30, and 25, the mean absolute deviation is closest to:

7.5.

1212The mean absolute deviation is the mean of the absolute values of the differences between each number and the mean. Because the mean is (45 + 20 + 30 + 25) I 4 = 30, the mean absolute deviation is

Shortfall risk is best described as the probability:

that portfolio value will fall below some minimum level at a future date.

Choice : of a credit rating downgrade due to possible earnings shortfalls is downgrade risk; choice of failing to make a contractually promised payment

The probability that it will rain on any given day in the month of June (30 days) is 0.3. The expected value and standard deviation of the number of rainy days in June are closest to:
Expected Value and Standard Deviation

9 and 2.51

1212Using the binomial distribution:
Expected Value = 30 x 0.3 = 9
Standard Deviation =

An investor purchases a T‐bill for $940 when its money market yield is 6.2% and there are 120 days left to maturity. The HPY and EAY for the T‐bill are closest to:

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