PRMIA 8007 Quiz 2 Topic 1 Questions 6-10

Question: 1

When calculating the implied volatility from an option price we use the bisection method and know initially that the volatility is somewhere between 1% and 100%. How many iterations do we need in order to determine the implied volatility with accuracy of 0.1%?

A10

B100

C25

D5

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Question: 2

When calculating the implied volatility from an option price we use the bisection method and know initially that the volatility is somewhere between 1% and 100%. How many iterations do we need in order to determine the implied volatility with accuracy of 0.1%?

A10

B100

C25

D5

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Question: 3

You are to perform a simple linear regression using the dependent variable Y and the independent variable X (Y = a + bX). Suppose that cov(X,Y)=10, var(X)= 5, and that the mean of X is 1 and the mean of Y is 2. What are the values for the regression parameters a and b?

Ab=0.5, a=2.5

Bb=0.5, a=1.5

Cb=2, a=4

Db=2, a=0

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Question: 4

In statistical hypothesis tests, 'Type I error' refers to the situation in which...

AThe null hypothesis is accepted when in fact it should have been rejected

BThe null hypothesis is rejected when in fact it should have been accepted

CBoth null hypothesis and alternative hypothesis are rejected

DBoth null hypothesis and alternative hypothesis are accepted

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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:

A0.40729

B0.00109

C0.00087

D0.32583

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PRMIA 8007 Quiz:2 Topic:1 Questions:6-10