Q1. Which of the following is an a priori probability? A) For a stock, based on prior patterns of up and down days, the probability of the stock having a down day tomorrow. B) On a random draw, the probability of choosing a stock of a particular industry from the S& 500. C) The probability the Fed will lower interest rates prior to the end of the year.
Q2. Each lottery ticket discloses the odds of winning. These odds are based on: A) a priori probability. B) past lottery history. C) the best estimate of the Department of Gaming.
Q3. Mital Tiene’s investment portfolio currently consists of stocks in two companies, 40% in Drysdahl Banking and the remaining amount in Clampett Oil. Performance measurement information for these two stocks is given in the table below: Stock Expected Return Standard Deviation Drysdahl Banking 10.50% 8.5% Clampett Oil 16.55% 25.0% The covariance between the two stocks is 0.001. Tiene is considering adding a third stock, Hilbilee Investors. Hilbilee Investor’s correlation coefficient with the current portfolio is 0.38. Which of the following statements is least accurate? A) As Tiene diversifies, he will reduce the portfolio's unsystematic risk. B) The standard deviation of returns for the current portfolio is 15.5%. C) With Hilbilee added to the portfolio, the variance could be 0.026.
Q4. Last year, the average salary increase for poultry research assistants was 2.5%. Of the 10,000 poultry research assistants, 2,000 received raises in excess of this amount. The odds that a randomly selected poultry research assistant received a salary increase in excess of 2.5% are:
A) 20%. B) 1 to 4. C) 1 to 5.
Q5. Which of the following statements about the defining properties of probability is most accurate? A) The probability of any event is between 0 and 1, exclusive. B) If the device that generates an event is not fair, the events can be mutually exclusive and exhaustive. C) The sum of the probabilities of events E1 though Ex equals one if the events are mutually exclusive or exhaustive.
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