GIT CS 7646 ML4T EXAM 1 QUESTIONS AND ANSWERS
Question 1: Why did it become a good investment to bet against mortgage-backed securities.
A) The default rate on the mortgages kept rising.
B) Rating agencies were accurately assigning ratings.
C) Banks were incentivized to issue more and more mortgages.
D) A and C - CORRECT ANSWER✅✅Correct answer: D
Question 2: In terms of the fundamental law, when aiming for high performance, you can make up for
low skill with .
A) low breadth
B) low sharpe ratio
C) high breadth
D) high volatility - CORRECT ANSWER✅✅Correct answer: C
Question 3: Is Bollinger Bands a leading indicator?
A) Yes
B) No, Bollinger Bands is a lagging indicator
C) No, Bollinger Bands is not an indicator
D) No, Bollinger bands is neither a leading or a lagging indicator - CORRECT ANSWER✅✅Correct
answer: B
Question 4: What should you do when the stock hits the bottom Bollinger Band?
A) Hold your position (don't change your position at all)
B) Exit any position you currently have and then hold at 0 shares
C) Short the stock to have negative shares
,D) Long the stock to have positive shares - CORRECT ANSWER✅✅Correct answer: D
Question 5: Who was the first bank Michael approached to make him the CDSs?
A) JP Morgan
B) Goldman Sachs
C) Deutsche Bank
D) Bank of America - CORRECT ANSWER✅✅Correct answer: B
Question 6: If the Information Coefficient is doubled and the trading opportunities are multiplied by 9,
what happens to the Information Ratio.
A) The Information Ratio is multiplied by 1 (remains unchanged)
B) The Information Ratio is multiplied by 4.5
C) The Information Ratio is multiplied by 6
D) The Information Ratio is multiplied by 18 - CORRECT ANSWER✅✅Correct answer: C
Question 7: What is the best way an investor who is lacking in skill can beat a more skillful investor?
A) Hire skillful people
B) Make smarter trades
C) Make more trades per day
D) Pick better stocks - CORRECT ANSWER✅✅Correct answer: C
Question 8: Which statement is true regarding the Fundamental Law of Portfolio Management?
A) IR = IC * sqrt(BR)
B) IC = IR * sqrt(BR)
C) BR = IC * IR
,D) IR = IC + sqrt(BR) - CORRECT ANSWER✅✅Correct answer: A
Question 9: Which of the following can not improve your performance based on the Fundamental Law?
A) Improve your skill
B) Increase the Breadth
C) Increase the IC and BR
D) Decrease breadth but improve the skill - CORRECT ANSWER✅✅Correct answer: D
Question 10: What does CDS stand for?
A) Collateralized Debt Swap
B) Credit Default Swap
C) Collateralized Debt Security
D) Credit Default Security - CORRECT ANSWER✅✅Correct answer: B
Question 11: In the movie "The Big Short", what did Credit Default Swaps do?
A) Insured the bonds against failure and the insurer paid the claim if the underlying bonds fail
B) Insured the bonds against failure and the insurer paid the claim if the underlying bonds make money
C) To increase employees
D) As an annual practice - CORRECT ANSWER✅✅Correct answer: A
Question 12: Which of the following is not the keys of Grinold's fundamental law?
A) Skill
B) Performance
C) Luck
, D) Breadth - CORRECT ANSWER✅✅Correct answer: C
Question 13: Which of these scenarios does not indicate an upward trend in stock price:
A) A particular stock's price surpasses the upper Bollinger Band
B) A particular stock's 20-day SMA surpasses its 100-day SMA
C) A particular stock's short-term EMA falls below its long-term EMA
D) The value of a particular stock's Bollinger Band Percentage > 0.8 and its price/SMA ratio is >= 1 -
CORRECT ANSWER✅✅Correct answer: C
Question 14: Which of these could represent a State in a Reinforcement Learning problem when
referring to a trading scenario?
A) BUY
B) Daily Return
C) Return from Trade
D) All of the above - CORRECT ANSWER✅✅Correct answer: B
Question 15: Which celebrity chef and "Kitchen Confidential" author explains collateralized debt
obligations (CDOs) by comparing them to fish stew?
A) Gordon Ramsay
B) Mario Batali
C) Thomas Keller
D) Anthony Bourdain - CORRECT ANSWER✅✅Correct answer: D
Question 16: Following statement is true or false: Hedge Funds cannot succeed if EMH applies.
A) True
Question 1: Why did it become a good investment to bet against mortgage-backed securities.
A) The default rate on the mortgages kept rising.
B) Rating agencies were accurately assigning ratings.
C) Banks were incentivized to issue more and more mortgages.
D) A and C - CORRECT ANSWER✅✅Correct answer: D
Question 2: In terms of the fundamental law, when aiming for high performance, you can make up for
low skill with .
A) low breadth
B) low sharpe ratio
C) high breadth
D) high volatility - CORRECT ANSWER✅✅Correct answer: C
Question 3: Is Bollinger Bands a leading indicator?
A) Yes
B) No, Bollinger Bands is a lagging indicator
C) No, Bollinger Bands is not an indicator
D) No, Bollinger bands is neither a leading or a lagging indicator - CORRECT ANSWER✅✅Correct
answer: B
Question 4: What should you do when the stock hits the bottom Bollinger Band?
A) Hold your position (don't change your position at all)
B) Exit any position you currently have and then hold at 0 shares
C) Short the stock to have negative shares
,D) Long the stock to have positive shares - CORRECT ANSWER✅✅Correct answer: D
Question 5: Who was the first bank Michael approached to make him the CDSs?
A) JP Morgan
B) Goldman Sachs
C) Deutsche Bank
D) Bank of America - CORRECT ANSWER✅✅Correct answer: B
Question 6: If the Information Coefficient is doubled and the trading opportunities are multiplied by 9,
what happens to the Information Ratio.
A) The Information Ratio is multiplied by 1 (remains unchanged)
B) The Information Ratio is multiplied by 4.5
C) The Information Ratio is multiplied by 6
D) The Information Ratio is multiplied by 18 - CORRECT ANSWER✅✅Correct answer: C
Question 7: What is the best way an investor who is lacking in skill can beat a more skillful investor?
A) Hire skillful people
B) Make smarter trades
C) Make more trades per day
D) Pick better stocks - CORRECT ANSWER✅✅Correct answer: C
Question 8: Which statement is true regarding the Fundamental Law of Portfolio Management?
A) IR = IC * sqrt(BR)
B) IC = IR * sqrt(BR)
C) BR = IC * IR
,D) IR = IC + sqrt(BR) - CORRECT ANSWER✅✅Correct answer: A
Question 9: Which of the following can not improve your performance based on the Fundamental Law?
A) Improve your skill
B) Increase the Breadth
C) Increase the IC and BR
D) Decrease breadth but improve the skill - CORRECT ANSWER✅✅Correct answer: D
Question 10: What does CDS stand for?
A) Collateralized Debt Swap
B) Credit Default Swap
C) Collateralized Debt Security
D) Credit Default Security - CORRECT ANSWER✅✅Correct answer: B
Question 11: In the movie "The Big Short", what did Credit Default Swaps do?
A) Insured the bonds against failure and the insurer paid the claim if the underlying bonds fail
B) Insured the bonds against failure and the insurer paid the claim if the underlying bonds make money
C) To increase employees
D) As an annual practice - CORRECT ANSWER✅✅Correct answer: A
Question 12: Which of the following is not the keys of Grinold's fundamental law?
A) Skill
B) Performance
C) Luck
, D) Breadth - CORRECT ANSWER✅✅Correct answer: C
Question 13: Which of these scenarios does not indicate an upward trend in stock price:
A) A particular stock's price surpasses the upper Bollinger Band
B) A particular stock's 20-day SMA surpasses its 100-day SMA
C) A particular stock's short-term EMA falls below its long-term EMA
D) The value of a particular stock's Bollinger Band Percentage > 0.8 and its price/SMA ratio is >= 1 -
CORRECT ANSWER✅✅Correct answer: C
Question 14: Which of these could represent a State in a Reinforcement Learning problem when
referring to a trading scenario?
A) BUY
B) Daily Return
C) Return from Trade
D) All of the above - CORRECT ANSWER✅✅Correct answer: B
Question 15: Which celebrity chef and "Kitchen Confidential" author explains collateralized debt
obligations (CDOs) by comparing them to fish stew?
A) Gordon Ramsay
B) Mario Batali
C) Thomas Keller
D) Anthony Bourdain - CORRECT ANSWER✅✅Correct answer: D
Question 16: Following statement is true or false: Hedge Funds cannot succeed if EMH applies.
A) True
