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investment analysis portfolio

Questions and Answers of Investment Analysis Portfolio

An institution offers you the following terms for a contract: For an investment of¥2,500,000, the institution promises to pay you a lump sum six years from now at an 8 percent annual interest rate.
A pension fund manager estimates that his corporate sponsor will make a $10 million contribution five years from now. The rate of return on plan assets has been estimated at 9 percent per year. The
An Australian bank offers to pay you 6 percent compounded monthly. You decide to invest A$1 million for one year. What is the future value of your investment if interest payments are reinvested at 6
A client invests €20,000 in a four-year certificate of deposit (CD) that annually pays interest of 3.5%. The annual CD interest payments are automatically reinvested in a separate savings account
Given the following time line and a discount rate of 4% a year compounded annually, the present value (PV), as of the end of Year 5 (PV5 ), of the cash flow received at the end of Year 20 is closest
Given a stated annual interest rate of 6% compounded quarterly, the level amount that, deposited quarterly, will grow to £25,000 at the end of 10 years is closest to:A. £461.B. £474.C. £836.
A sports car, purchased for £200,000, is financed for five years at an annual rate of 6%compounded monthly. If the first payment is due in one month, the monthly payment is closest to:A. £3,847.B.
The present value (PV) of an investment with the following year-end cash flows (CF)and a 12% required annual rate of return is closest to:Year Cash Flow (€)1 100,000 2 150,000 5 –10,000 A.
Grandparents are funding a newborn’s future university tuition costs, estimated at$50,000/year for four years, with the first payment due as a lump sum in 18 years.Assuming a 6% effective annual
At a 5% interest rate per year compounded annually, the present value (PV) of a 10-year ordinary annuity with annual payments of $2,000 is $15,443.47. The PV of a 10-year annuity due with the same
A sweepstakes winner may select either a perpetuity of £2,000 a month beginning with the first payment in one month or an immediate lump sum payment of £350,000. If the annual discount rate is 6%
An investment of €500,000 today that grows to €800,000 after six years has a stated annual interest rate closest to:A. 7.5% compounded continuously.B. 7.7% compounded daily.C. 8.0% compounded
A saver deposits the following amounts in an account paying a stated annual rate of 4%, compounded semiannually:Year End-of-Year Deposits ($)1 4,000 2 8,000 3 7,000 4 10,000 At the end of Year 4, the
A perpetual preferred stock makes its first quarterly dividend payment of $2.00 in five quarters. If the required annual rate of return is 6% compounded quarterly, the stock’s present value is
An investment pays €300 annually for five years, with the first payment occurring today.The present value (PV) of the investment discounted at a 4% annual rate is closest to:A. €1,336.B.
Given a €1,000,000 investment for four years with a stated annual rate of 3%compounded continuously, the difference in its interest earnings compared with the same investment compounded daily is
For a lump sum investment of ¥250,000 invested at a stated annual rate of 3%compounded daily, the number of months needed to grow the sum to ¥1,000,000 is closest to:A. 555.B. 563.C. 576.
A client requires £100,000 one year from now. If the stated annual rate is 2.50%compounded weekly, the deposit needed today is closest to:A. £97,500.B. £97,532.C. £97,561.
The value in six years of $75,000 invested today at a stated annual interest rate of 7%compounded quarterly is closest to:A. $112,555.B. $113,330.C. $113,733.
A bank quotes a stated annual interest rate of 4.00%. If that rate is equal to an effective annual rate of 4.08%, then the bank is compounding interest:A. daily.B. quarterly.C. semiannually.
Which of the following risk premiums is most relevant in explaining the difference in yields between 30-year bonds issued by the US Treasury and 30-year bonds issued by a small private issuer?A.
The nominal risk-free rate is best described as the sum of the real risk-free rate and a premium for:A. maturity.B. liquidity.C. expected inflation.
A couple plans to pay their child’s college tuition for 4 years starting 18 years from now.The current annual cost of college is C$7,000, and they expect this cost to rise at an annual rate of 5
A client plans to send a child to college for four years starting 18 years from now.Having set aside money for tuition, she decides to plan for room and board also. She estimates these costs at
Suppose you plan to send your daughter to college in three years. You expect her to earn two-thirds of her tuition payment in scholarship money, so you estimate that your payments will be $10,000 a
You are considering investing in two different instruments. The first instrument will pay nothing for three years, but then it will pay $20,000 per year for four years. The second instrument will pay
A client can choose between receiving 10 annual $100,000 retirement payments, starting one year from today, or receiving a lump sum today. Knowing that he can invest at a rate of 5 percent annually,
Two years from now, a client will receive the first of three annual payments of $20,000 from a small business project. If she can earn 9 percent annually on her investments and plans to retire in six
The table below gives current information on the interest rates for two two-year and two eight-year maturity investments. The table also gives the maturity, liquidity, and default risk
explain inputs and decisions in simulation and interpret a simulation; and demonstrate the use of sensitivity analysis.
contrast Monte Carlo and historical simulation;
evaluate and interpret a scenario analysis;
compare methods of modeling randomness;
describe different ways to construct multifactor models;
identify problems in a backtest of an investment strategy;
interpret metrics and visuals reported in a backtest of an investment strategy;
describe and contrast steps and procedures in backtesting an investment strategy;
describe objectives in backtesting an investment strategy;
describe risk measures used by banks, asset managers, pension funds, and insurers.
explain how risk measures may be used in capital allocation decisions;
explain constraints used in managing market risks, including risk budgeting, position limits, scenario limits, and stop-loss limits;
describe advantages and limitations of sensitivity risk measures and scenario risk measures;
describe the use of sensitivity risk measures and scenario risk measures;
demonstrate how equity, fixed-income, and options exposure measures may be used in measuring and managing market risk and volatility risk;
describe sensitivity risk measures and scenario risk measures and compare these measures to VaR;
describe extensions of VaR;
describe advantages and limitations of VaR;
estimate and interpret VaR under the parametric, historical simulation, and Monte Carlo simulation methods;
compare the parametric (variance–covariance), historical simulation, and Monte Carlo simulation methods for estimating VaR;
explain the use of value at risk (VaR) in measuring portfolio risk;
evaluate the fit of a machine learning algorithm.
describe methods for extracting, selecting and engineering features from textual data;
describe preparing, wrangling, and exploring text-based data for financial forecasting;
describe objectives, steps, and techniques in model training;
describe objectives, methods, and examples of data exploration;
describe objectives, steps, and examples of preparing and wrangling data;
state and explain steps in a data analysis project;
describe the potential benefits for investors in considering multiple risk dimensions when modeling asset returns.
describe uses of multifactor models and interpret the output of analyses based on multifactor models;
explain sources of active risk and interpret tracking risk and the information ratio;
describe and compare macroeconomic factor models, fundamental factor models, and statistical factor models;
calculate the expected return on an asset given an asset’s factor sensitivities and the factor risk premiums;
define arbitrage opportunity and determine whether an arbitrage opportunity exists;
describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models;
describe neural networks, deep learning nets, and reinforcement learning.
describe unsupervised machine learning algorithms—including principal components analysis, k-means clustering, and hierarchical clustering—and determine the problems for which they are best
describe supervised machine learning algorithms—including penalized regression, support vector machine, k-nearest neighbor, classification and regression tree, ensemble learning, and random
describe overfitting and identify methods of addressing it;
distinguish between supervised machine learning, unsupervised machine learning, and deep learning;
determine an appropriate time-series model to analyze a given investment problem and justify that choice.
explain how time-series variables should be analyzed for nonstationarity and/or cointegration before use in a linear regression; and
explain autoregressive conditional heteroskedasticity (ARCH) and describe how ARCH models can be applied to predict the variance of a time series;
explain how to test and correct for seasonality in a time-series model and calculate and interpret a forecasted value using an AR model with a seasonal lag;
describe the steps of the unit root test for nonstationarity and explain the relation of the test to autoregressive time-series models;
describe implications of unit roots for time-series analysis, explain when unit roots are likely to occur and how to test for them, and demonstrate how a time series with a unit root can be
describe characteristics of random walk processes and contrast them to covariance stationary processes;
explain the instability of coefficients of time-series models;
contrast in-sample and out-of-sample forecasts and compare the forecasting accuracy of different time-series models based on the root mean squared error criterion;
explain mean reversion and calculate a mean-reverting level;
explain how autocorrelations of the residuals can be used to test whether the autoregressive model fits the time series;
describe the structure of an autoregressive (AR) model of order p and calculate one- and two-period-ahead forecasts given the estimated coefficients;
explain the requirement for a time series to be covariance stationary and describe the significance of a series that is not stationary;
describe factors that determine whether a linear or a log-linear trend should be used with a particular time series and evaluate limitations of trend models;
calculate and evaluate the predicted trend value for a time series, modeled as either a linear trend or a log-linear trend, given the estimated trend coefficients;
evaluate and interpret a multiple regression model and its results.
interpret an estimated logistic regression;
describe how model misspecification affects the results of a regression analysis, and describe how to avoid common forms of misspecification;
describe multicollinearity, and explain its causes and effects in regression analysis;
explain the types of heteroskedasticity and how heteroskedasticity and serial correlation affect statistical inference;
formulate and interpret a multiple regression, including qualitative independent variables;
evaluate how well a regression model explains the dependent variable by analyzing the output of the regression equation and an ANOVA table;
distinguish between and interpret the R2 and adjusted R2 in multiple regression;
calculate and interpret the F-statistic, and describe how it is used in regression analysis;
explain the assumptions of a multiple regression model;
calculate and interpret a predicted value for the dependent variable, given an estimated regression model and assumed values for the independent variables;
interpret the results of hypothesis tests of regression coefficients;
formulate a null and an alternative hypothesis about the population value of a regression coefficient, calculate the value of the test statistic, and determine whether to reject the null hypothesis
interpret estimated regression coefficients and their p-values;
formulate a multiple regression equation to describe the relation between a dependent variable and several independent variables, and determine the statistical significance of each independent
describe the use of analysis of variance (ANOVA) in regression analysis, interpret ANOVA results, and calculate and interpret the F-statistic.

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