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NEW QUESTION: 1
A. Option C
B. Option B
C. Option D
D. Option A
Answer: A
NEW QUESTION: 2
Which of the following statements regarding covariance is correct?
A. Covariance always lies in the range -1 to +1
B. Covariance, because it involves a squared value, must always be a positive number (or zero)
C. Co-variances can take on positive, negative, or zero values
D. Low co-variances among returns for different securities leads to high portfolio risk
Answer: C
NEW QUESTION: 3
What command will stop all (and only) Management Portal services?
A. sportalstop
B. spstop
C. cpstop
D. smartportalstop
Answer: D
NEW QUESTION: 4
Which of the following statements is true in relation to a normal mixture distribution:
I. The mixture will always have a kurtosis greater than a normal distribution with the same mean and variance II. A normal mixture density function is derived by summing two or more normal distributions III. VaR estimates for normal mixtures can be calculated using a closed form analytic formula
A. I and III
B. I, II and III
C. I and II
D. II and III
Answer: C
Explanation:
Explanation
Normal mixtures have higher peaks, and therefore higher kurtosis than a normal distribution with an equivalent mean and variance. Therefore statement I is correct.
The term 'normal mixture' literally means that - the distribution is derived by summing two or more normal distributions. Statement II is correct. One interesting thing to note about normal mixtures is that their mean and variances are just the weighted averages of the means and variances of their underlying component normal distributions. But their kurtosis is higher than that of either of the components. They are more peaked, and have fatter tails, a property that makes them useful in finance.
Unfortunately there is no analytical formula for calculating VaR based on normal mixtures. However, we can back solve for VaR (using Excel's Solver, for example), given we know the density functions for the underlying normal distributions. Statement III is not correct.
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