Convexity Academy

Sample Level I questions

Questions like the study app's recall checks. Choose an answer, then open the explanation.

True or False: For the same stated annual rate, continuous compounding gives an EAR that is lower than the EAR from semiannual compounding, because the interest is spread over so many tiny periods.

  1. A True
  2. B False
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Answer: B

More frequent compounding raises the EAR. Continuous compounding is the limit of ever more frequent compounding, so it yields the highest EAR for a given stated rate, above the semiannual figure.

Quantitative Methods · module QM-R1

In a hypothesis test, what is the role of the test statistic?

  1. A It is computed from the sample and, together with a decision rule, determines whether the null hypothesis is rejected.
  2. B It is the probability of rejecting a null hypothesis that is false.
  3. C It is the significance level chosen by the researcher before sampling.
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Answer: A

A test statistic is a sample-based value that, used with a decision rule, is the basis for rejecting or not rejecting the null. Power and significance level are different concepts.

Quantitative Methods · module QM-R6

Under the Benjamini-Hochberg approach, how are the p-values from a series of tests handled?

  1. A Each p-value is compared to the significance level alone, ignoring ranks
  2. B They are ranked from lowest to highest, and each is compared with the significance level scaled by its rank over the number of tests
  3. C They are averaged, and the average is compared with the significance level
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Answer: B

BH ranks p-values lowest to highest and compares each with alpha times rank divided by number of tests. The highest rank k meeting the condition sets how many tests are significant.

Quantitative Methods · module QM-R6

Which description best captures what makes a test nonparametric?

  1. A It addresses something other than a distribution parameter, or it relies on very few assumptions about the population sampled.
  2. B It always requires the population to be normally distributed with a known variance.
  3. C It can only be applied to samples that are large enough for the t-distribution to apply.
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Answer: A

A nonparametric test is either not about a parameter or makes minimal assumptions about the population. Parametric tests are the ones tied to parameters and specific distributional assumptions.

Quantitative Methods · module QM-R6

A analyst holds a table counting funds by two categorical labels, size group and investment style. Which test fits the question of whether the two labels are related?

  1. A A chi-square test of independence on the contingency table
  2. B A correlation-based t-test on the two labels
  3. C A paired-comparisons t-test on the cell counts
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Answer: A

Because the classifications are discrete, correlation cannot be used; a nonparametric chi-square test of independence on the contingency table is used.

Quantitative Methods · module QM-R6

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