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Free 8007 – Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition Practice Test Question

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Showing 4–6 of 10 questions

Question 4

In a quadratic Taylor approximation, a function is approximated by:

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  • ○

    a constant

  • ○

    a straight line

  • ○

    a parabola

  • ○

    a cubic polynomial


Question 5

Consider two securities X and Y with the following 5 annual returns:

X: +10%, +3%, -2%, +3%, +5%

Y: +7%, -2%, +3%, -5%, +10%

In this case the sample covariance between the two time series can be calculated as:

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  • ○

    0.40729

  • ○

    0.00109

  • ○

    0.00087

  • ○

    0.32583


Question 6

The correlation between two asset returns is 0.5. What is the largest eigenvalue of their correlation matrix?

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  • ○

    0.5

  • ○

    1

  • ○

    1.5

  • ○

    None of the above