ML4T QUESTIONS WITH VERIFIED ACCURATE
ANSWERS 2026
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 - Answers -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 - Answers -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 - Answers -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 - Answers -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 - Answers -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 - Answers -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 - Answers -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) -
Answers -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 - Answers -D
Question 10: What does CDS stand for?
A) Collateralized Debt Swap B) Credit Default Swap C) Collateralized Debt Security D)
Credit Default Security - Answers -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 -
Answers -A
Question 12: Which of the following is not the keys of Grinold's fundamental law?
A) Skill B) Performance C) Luck D) Breadth - Answers -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 - Answers -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 - Answers -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 - Answers -
D
Question 16: Following statement is true or false: Hedge Funds cannot succeed if EMH
applies. A) True B) False - Answers -B
Question 17: In Reinforcement Learning, the default MDP has an assumption of infinite
horizons to overcome that, we introduce a concept of ___________ rewards. Multiplying
the reward by λ raised to t. Where λ's limits are ___< λ <=___. A) [reduced , -1, 1] B)
[reduced, 0 , 1] C) [discounted, -1, 1] D) [discounted, 0 , 1] - Answers -D
Question 19: Given that EMH is about 3 forms, weak, semi-strong, and strong. What
would be the behavior of prices, if, for example, the standard investor became one that
only bought and held stocks passively? A) There would be no change in the way that
prices adjusted B) Prices will fail eventually to show any type of new information. There
will be incentives to trade more C) Prices will continue to change based on new
information that won't cease to enter the market D) We would probably enter another
recession - Answers -B
ANSWERS 2026
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 - Answers -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 - Answers -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 - Answers -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 - Answers -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 - Answers -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 - Answers -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 - Answers -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) -
Answers -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 - Answers -D
Question 10: What does CDS stand for?
A) Collateralized Debt Swap B) Credit Default Swap C) Collateralized Debt Security D)
Credit Default Security - Answers -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 -
Answers -A
Question 12: Which of the following is not the keys of Grinold's fundamental law?
A) Skill B) Performance C) Luck D) Breadth - Answers -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 - Answers -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 - Answers -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 - Answers -
D
Question 16: Following statement is true or false: Hedge Funds cannot succeed if EMH
applies. A) True B) False - Answers -B
Question 17: In Reinforcement Learning, the default MDP has an assumption of infinite
horizons to overcome that, we introduce a concept of ___________ rewards. Multiplying
the reward by λ raised to t. Where λ's limits are ___< λ <=___. A) [reduced , -1, 1] B)
[reduced, 0 , 1] C) [discounted, -1, 1] D) [discounted, 0 , 1] - Answers -D
Question 19: Given that EMH is about 3 forms, weak, semi-strong, and strong. What
would be the behavior of prices, if, for example, the standard investor became one that
only bought and held stocks passively? A) There would be no change in the way that
prices adjusted B) Prices will fail eventually to show any type of new information. There
will be incentives to trade more C) Prices will continue to change based on new
information that won't cease to enter the market D) We would probably enter another
recession - Answers -B
