Ethical And Professional Standards Quantitative Methods And Economics Level II Volume 1 CFA Institute - Solutions

Problem 3 addressed the cross-sectional variation in the number of financial analysts who follow a company. In that problem, company size and debt-to-equity ratios were the independent variables. You receive a suggestion that membership in the S&P 500 Index should be added to the model as a third
Both researchers and the popular press have discussed the question as to which of the two leading US political parties, Republicans or Democrats, is better for the stock market.A. Write a regression equation to test whether overall market returns, as measured by the annual returns on the S&P 500
Some developing nations are hesitant to open their equity markets to foreign investment because they fear that rapid inflows and outflows of foreign funds will increase volatility. In July 1993, India implemented substantial equity market reforms, one of which allowed foreign institutional
The “neglected-company effect” claims that companies that are followed by fewer analysts will earn higher returns on average than companies that are followed by many analysts. To test the neglected-company effect, you have collected data on 66 companies and the number of analysts providing
In early 2001, US equity marketplaces started trading all listed shares in minimal increments (ticks) of $0.01 (decimalization). After decimalization, bid–ask spreads of stocks traded on the NASDAQ tended to decline. In response, spreads of NASDAQ stocks cross-listed on the Toronto Stock Exchange
There is substantial cross-sectional variation in the number of financial analysts who follow a company. Suppose you hypothesize that a company’s size (market cap) and financial risk (debt-to-equity ratios) influence the number of financial analysts who follow a company. You formulate the
One of the most important questions in financial economics is what factors determine the cross-sectional variation in an asset’s returns. Some have argued that book-to-market ratio and size (market value of equity) play an important role.A. Write a multiple regression equation to test whether
With many US companies operating globally, the effect of the US dollar’s strength on a US company’s returns has become an important investment issue.You would like to determine whether changes in the US dollar’s value and overall US equity market returns affect an asset’s returns. You
Does the predicted bid–ask spread for the above stock make sense? If not, how could this problem be avoided?
Suppose that for a particular NASDAQ-listed stock, the number of market makers is 50 and the market capitalization is $6 billion. What is the predicted ratio of bid–ask spread to price for this stock based on the above model?
evaluate and interpret a multiple regression model and its results.
describe models with qualitative dependent variables;
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 a multiple regression equation by using dummy variables to represent qualitative factors and interpret the coefficients and regression results;
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 1) a confidence interval for the population value of a regression coefficient and 2) 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 at a given level of significance;
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 variable;
Which of Olabudo’s noted limitations of regression analysis is correct?A. Only Limitation 1 B. Only Limitation 2 C. Both Limitation 1 and Limitation 2
Based on Exhibit 1, Olabudo should calculate a prediction interval for the actual US CPI closest to:A. 2.7506 to 2.7544.B. 2.7521 to 2.7529.C. 2.7981 to 2.8019.
Based on Exhibit 1, Olabudo should:A. conclude that the inflation predictions are unbiased.B. reject the null hypothesis that the slope coefficient equals 1.C. reject the null hypothesis that the intercept coefficient equals 0.
Using information from Exhibit 2, Vasileva should compute the 95% prediction interval for Amtex share return for month 37 to be:A. –0.0882 to 0.1025.B. –0.0835 to 0.1072.C. 0.0027 to 0.0116.
Based on Exhibit 2 and Vasileva’s prediction of the crude oil return for month 37, the estimate of Amtex share return for month 37 is closest to:A. –0.0024.B. 0.0071.C. 0.0119.
Based on Exhibit 2, Vasileva should compute the:A. coefficient of determination to be 0.4689.B. 95% confidence interval for the intercept to be –0.0037 to 0.0227.C. 95% confidence interval for the slope coefficient to be 0.0810 to 0.3898.
Based on Exhibit 2, Vasileva should reject the null hypothesis that:A. the slope is less than or equal to 0.15.B. the intercept is less than or equal to 0.C. crude oil returns do not explain Amtex share returns.
Based on Exhibit 1, the standard error of the estimate is closest to:A. 0.044558.B. 0.045850.C. 0.050176.
Which of Vasileva’s assumptions regarding regression analysis is incorrect?A. Assumption 1 B. Assumption 2 C. Assumption 3
Based on Liu’s regression results in Exhibit 2, the F-statistic for testing whether the slope coefficient is equal to zero is closest to:A. −2.2219.B. 3.5036.C. 4.9367.
Based on Exhibit 2, the short interest ratio expected for MQD Corporation is closest to:A. 3.8339.B. 5.4975.C. 6.2462.
Which of the following should Liu conclude from these results shown in Exhibit 2?A. The average short interest ratio is 5.4975.B. The estimated slope coefficient is statistically significant at the 0.05 level.C. The debt ratio explains 30.54% of the variation in the short interest ratio.
The upper bound for the 95% confidence interval for the coefficient on the debt ratio in the regression is closest to:A. −1.0199.B. −0.3947.C. 1.4528.
Based on Exhibit 2, the degrees of freedom for the t-test of the slope coefficient in this regression are:A. 48.B. 49.C. 50.
The dependent variable in Liu’s regression analysis is the:A. intercept.B. debt ratio.C. short interest ratio.
Which of the interpretations best describes Liu’s findings for her report?A. Interpretation 1 B. Interpretation 2 C. Interpretation 3
Based on Exhibit 1, the correlation between the debt ratio and the short interest ratio is closest to:A. −0.3054.B. 0.0933.C. 0.3054.
Based on Exhibit 1, the sample covariance is closest to:A. −9.2430.B. −0.1886.C. 8.4123.
Based on Exhibits 1 and 2, if Liu were to graph the 50 observations, the scatterplot summarizing this relation would be best described as:A. horizontal.B. upward sloping.C. downward sloping.
For the analysis run by Batten, which of the following is an incorrect conclusion from the regression output?A. The estimated intercept coefficient from Batten’s regression is statistically significant at the 0.05 level.B. In the month after the CPIENG declines, Stellar’s common stock is
For Batten’s regression model, the standard error of the estimate shows that the standard deviation of:A. the residuals from the regression is 0.0710.B. values estimated from the regression is 0.0710.C. Stellar’s observed common stock returns is 0.0710.
Based on Batten’s regression model, the coefficient of determination indicates that:A. Stellar’s returns explain 2.11 percent of the variability in CPIENG.B. Stellar’s returns explain 14.52 percent of the variability in CPIENG.C. Changes in CPIENG explain 2.11 percent of the variability in
Based on the regression, which used data in decimal form, if the CPIENG decreases by 1.0 percent, what is the expected return on Stellar common stock during the next period?A. 0.0073 (0.73 percent).B. 0.0138 (1.38 percent).C. 0.0203 (2.03 percent).
Did Batten’s regression analyze cross-sectional or time-series data, and what was the expected value of the error term from that regression?Data Type Expected Value of Error Term A Time-series 0 B Time-series εi C Cross-sectional 0
Is the relationship between the ratio of cash flow to operations and the ratio of net income to sales significant at the 5 percent level?A. No, because the R-squared is greater than 0.05.B. No, because the p-values of the intercept and slope are less than 0.05.C. Yes, because the p-values for F and
If the ratio of net income to sales for a restaurant is 5 percent, what is the predicted ratio of cash flow from operations to sales?A. 0.007 + 0.103(5.0) = 0.524.B. 0.077 − 0.826(5.0) = −4.054.C. 0.077 + 0.826(5.0) = 4.207.
Where did the F-value in the ANOVA table come from?A. You look up the F-value in a table. The F depends on the numerator and denominator degrees of freedom.B. Divide the “Mean Square” for the regression by the “Mean Square” of the residuals.C. The F-value is equal to the reciprocal of the
What is the correlation between X and Y?A. −0.7436.B. 0.7436.C. 0.8623.
Suppose that you deleted several of the observations that had small residual values. If you reestimated the regression equation using this reduced sample, what would likely happen to the standard error of the estimate and the R-squared?Standard Error of the Estimate R-Squared A Decrease Decrease B
What is the value of the coefficient of determination?A. 0.8261.B. 0.7436.C. 0.8623.
An economist collected the monthly returns for KDL’s portfolio and a diversified stock index. The data collected are shown below:Month Portfolio Return (%) Index Return (%)1 1.11 −0.59 2 72.10 64.90 3 5.12 4.81 4 1.01 1.68 5 −1.72 −4.97 6 4.06 −2.06 The economist calculated the
You are examining the results of a regression estimation that attempts to explain the unit sales growth of a business you are researching. The analysis of variance output for the regression is given in the table below. The regression was based on five observations (n = 5).ANOVA df SS MSS F
Julie Moon is an energy analyst examining electricity, oil, and natural gas consumption in different regions over different seasons. She ran a regression explaining the variation in energy consumption as a function of temperature. The total variation of the dependent variable was 140.58, the
describe limitations of regression analysis
describe the use of analysis of variance (ANOVA) in regression analysis, interpret ANOVA results, and calculate and interpret the F-statistic;
calculate and interpret a confidence interval for the predicted value of the dependent variable;
calculate the predicted value for the dependent variable, given an estimated regression model and a value for the independent variable;
formulate a null and alternative hypothesis about a population value of a regression coefficient and determine the appropriate test statistic and whether the null hypothesis is rejected at a given level of significance;
calculate and interpret the standard error of estimate, the coefficient of determination, and a confidence interval for a regression coefficient;
explain the assumptions underlying linear regression and interpret regression coefficients;
distinguish between the dependent and independent variables in a linear regression;
Did Omondi most likely violate the CFA Institute Code and Standards by purchasing shares for his personal and family accounts?A. Yes B. No, because the information is not definite C. No, because the board has not voted on the offer
Did Kirabo most likely violate the CFA Institute Code and Standards by purchasing additional shares of Mtume?A. Yes B. No, because the information that Kirabo learned from Moroka was not definite C. No, because his decision was based on the output from the analyst’s revised model
According to the CFA Institute Code and Standards, whom must Kirabo most likely inform of the material changes related to the PAFF?A. Current clients only B. Prospective clients only C. Current and prospective clients
Does Kirabo most likely violate the CFA Institute Code and Standards by including his prior performance in the PAFF marketing brochure?A. No B. Yes, because the brochure should have stated the name of the firm where he earned prior performance C. Yes, because the marketing brochure should not show
According to the CFA Institute Code and Standards, which of the changes in the PAFF Fund does Kirabo not have to disclose?A. Change 1 B. Change 2 C. Change 3
Omondi most likely violated the CFA Institute Code and Standards when dealing with the sovereign wealth fund’s top managers:A. only by making charitable donations.B. only by hiring a sub-adviser because of his high-level government contacts.C. by both A and B.
Did Omondi most likely violate the CFA Institute Code and Standards in supervising the employees in the two trading desks?A. Yes B. No, because he implemented a policy to prevent front-running C. No, because he encouraged collaboration between the two departments'
By allowing customer order information to be known to the traders on the proprietary desk, did traders on the main trading desk most likely violate the CFA Institute Code and Standards?A. Yes B. No, because this information was not shared outside of the firm C. No, because proprietary traders were
Did Othan violate the CFA Institute Code and Standards in his description of Ode?A. Yes B. No, because Ode will be a CFA charterholder in another six months C. No, because Ode has successfully completed all three levels of the CFA Program
Which of the comments Ode posted in the CFA candidate chatroom violated the CFA Institute Code and Standards?A. Comment 1 B. Comment 2 C. Comment 3
Did Othan violate the CFA Institute Code and Standards by not disclosing to clients that he was receiving $500 for each client that he brought over to JRA from Sack?A. No B. Yes, because this is a referral fee C. Yes, because this is additional compensation
Did Othan violate the CFA Institute Code and Standards by contacting his Sack International clients via social media after leaving Sack?A. No B. Yes, because he is using client confidential information C. Yes, because the client information he is using belongs to Sack
Did Jacobs and Riccio violate the CFA Institute Code and Standards by making annual donations to Carroll’s Children’s Charity?A. No B. Yes, because these donations create a conflict of interest C. Yes, because these donations represent additional compensation to Carroll
Has Parker violated the CFA Institute Code and Standards in her referral arrangement with Frontline Group?A. Yes B. No, because Frontline Group continues to provide “best price”and “best execution”C. No, because nothing has changed—all client trades are still executed by Frontline
Do JRA advisers violate the CFA Institute Code and Standards by sharing client information with the accountants at E&O?A. Yes B. No, because the client views representatives from both firms as a team C. No, because the client has signed confidentiality agreements with both firms
Does Jacobs violate the CFA Institute Code and Standards in his disclosure of referral arrangements to his clients?A. Yes B. No, because the lawyers disclose to their clients the discount that JRA offers C. No, because the discount and the fee-sharing arrangement is disclosed to individuals at the
Does Jacobs violate the CFA Institute Code and Standards by offering his referral clients a lower investment advisory fee than the one quoted in JRA’s marketing brochure?A. No B. Yes, because JRA is misrepresenting its fees C. Yes, because JRA is not dealing with its clients fairly
In the table that Singh provides to the marketing department, does he violate the CFA Institute Code and Standards?A. No, because he presented the performance information in the manner required by the CFA Institute Code and Standards B. Yes, because he should have included only the actual
Did Singh violate the CFA Institute Code and Standards with respect to his duties to his employer, QuantHouse, in developing his StockStar model?A. No B. Yes, because the model was developed while he was working at QH C. Yes, because he invests his personal and family portfolios using the model
Did Ringfield violate the CFA Institute Code and Standards when talking with clients about their portfolios’ underperformance?A. Yes B. No, because the market was turbulent C. No, because the model’s common risk factors were to blame
Did Singh violate the CFA Institute Code and Standards by not immediately fixing the error in the ATM model?A. Yes B. No, because the error will be fixed next quarter C. No, because Singh disabled the common risk factors in the Risk Model as ordered by Ringfield
According to the CFA Institute Code and Standards, what is the next action (from those below) that Singh should take following his conversation with Ringfield about the model error?A. Dissociate from the firm.B. Contact the firm’s clients.C. Contact senior management.
Prior to the performance concerns voiced by QH’s institutional clients, did Singh violate the CFA Institute Code and Standards in the updating of the ATM model components?A. Yes B. No, because he updates the model’s Alpha and Risk components on a quarterly basis C. No, because he followed the
Does Singh violate the CFA Institute Code and Standards by using the ATM model exclusively for QH’s institutional clients?A. No B. Yes, because the model may be suitable for some non-institutional clients C. Yes, because he must at least mention the model when talking to high-net worth individuals
explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct.
evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct;
According to the CFA Standards, Craw must disclose to CFA Institute the investigation into:A. his conduct.B. Voser’s conduct.C. neither his conduct nor Voser’s conduct.
Does Craw violate any CFA Institute Standards?A. No.B. Yes, because he passes material nonpublic information to Voser.C. Yes, because he does not make reasonable efforts to prevent violations of applicable law.
When recommending the purchase of additional Greenhornfood company shares, Voser least likely violates the Standard relating to:A. loyalty to employer.B. integrity of capital markets.C. diligence and reasonable basis.
When making her initial recommendation to purchase Greenhornfood company shares, Voser most likely violates the Standard relating to:A. loyalty to employer.B. integrity of capital markets.C. diligence and reasonable basis.
According to the CFA Institute Standards, must Voser obtain permission from her supervisor before accepting the Greenhornfood gift basket?A. No.B. Yes, because the value of the basket is higher than €50.C. Yes, because consent is required by the company’s compliance procedures.
Are Excerpts 2 and 3 of Crawfood’s compliance procedures consistent with the CFA Institute Standards of Professional Conduct?A. Yes.B. No, because Excerpt 2 applies only to officers and their direct reports.C. No, because Excerpt 3 does not require employees to achieve public dissemination.
Does Telline violate any CFA Institute Standards in his allocation of IPO shares to Caper’s account?A. No.B. Yes, because the IPO is not suitable for Caper.C. Yes, because he does not treat all his clients fairly.
Is Aiklin’s policy with respect to IPO allocations consistent with required and recommended CFA Institute Standards?A. Yes.B. No, because the IPO policy disadvantages certain clients.C. No, because the different levels of service disadvantage certain clients.

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Ethical And Professional Standards Quantitative Methods And Economics Level II Volume 1 CFA Institute - Solutions

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