MGT 6203 Exam 1 Questions with Correct Answers Latest Update 2025-2026
Adding an interaction term between the 2 independent variables to the model, how will the
model be affected. - Answers The R2 will increase (or remain the same) with certainty while the
adjusted R2 can increase or decrease.
Which is not a binary dependent variable? - Answers Change in value of an investment
The odds for your team winning is 0.6 in the next game. What is the probability of your team
losing in the next game? - Answers Odds = 0.6 (p/(1-p))
p = 0.6/1.6 = 0.375
probability of team losing = 1-0.375 = 0.625
While calculating a difference in difference, we run a regression which is as follows:
lm( y ~ d1 +d2 + d3)where d1 and d2 are dummy variables and d3 is their interaction term. We
thus get its coefficients according to the below equation: Y = a + b*d1 + c*d2 + d*d3
What is the difference in difference estimator? - Answers d - difference in difference estimator
is given by coefficient of interaction term
We want to observe a column "y" in dataset. We divide the observations into 2 parts, where y_0
is the set of observations of control group and y_1 is the set of observations of treatment group.
(Let function mean(X) gives the mean value of X) What is the difference estimator given by? -
Answers (A) mean(y_1) - mean(y_0)
Difference estimator = Cov(y1,y0)/Cov(y0,y0) = mean(y_1) - mean(y_0)
Which of these asset classes has historically been the safest (least risky)? - Answers Treasury
bonds
A company of market value $10 billion has a stock split of 2 for 1. Each share is valued at $100
before the stock split. What is the value of each share after the stock split? - Answers $50
A speculative fund manager wants to take advantage of mis-pricing in the market, where he
sees a stock trading at $13.00. He decides to buy and places a market order. Unfortunately, by
the time he places the order, he sees the best bid and offer prices of the stock (in $) as follows:
Bid: 13.20*200 Ask: 13.27*1000 - Answers $0.27
The stock price of Tesla on 31st December 2019 was $418.33 and on 25th February 2020 it is
$799.91. Its book value per share is $41.25 which is same for both dates. Calculating the
change in value factor (book value to price ratio) and momentum (percentage change in price).
, What does this imply about the value factor and momentum factor? - Answers Value factor
goes down and momentum factor goes up.
A high increase in price results in high increase in momentum. Also, this increase in price
results in a decrease in book to price ratio, thereby decreasing the value. There is strong
negative relation between the two.
A positive coefficient on SMB - Answers Indicates that the fund is tilted toward small cap stocks
A positive coefficient on HML - Answers indicates that the fund is tilted toward value stocks
A positive coefficient on MOM - Answers Indicates that the fund is tilted toward high
momentum stocks.
A positive coefficient on QMJ - Answers Indicates that the fund is tilted toward profitable stocks
A positive coefficient on BAB - Answers indicates that the fund is tilted toward safe stocks
A positive and significant coefficient for the intercept - Answers Indicates that the fund manager
has outperformed.
The size effect - Answers Smaller firms have higher returns than larger firms on average. Size =
price*shares outstanding.
The value effect - Answers Inexpensive stocks tend to outperform expensive stocks. Look at
Book to Market ratio (B/M). A low B/M ratio implies the stock is expensive. A high B/M ratio
implies the stock is inexpensive.
The momentum effect - Answers The tendency of stocks that have performed well over the past
year to continue to perform well.
The profitability effect - Answers Profitable stocks tend to outperform unprofitable stocks
Risk effect (volatility) - Answers Low beta assets outperform high beta assets
Investor behavioral biases - Answers 1. Overconfidence: The tendency to overestimate one's
ability
2. Loss aversion: The tendency of individuals to seek pride and avoid regret in their decisions.
3. Recency effect: People tend to overemphasize a recent information when making investment
decisions.
4. Anchoring: Individuals tend to take action based on a single fact or figure that should have
little bearing on their decision, while ignoring more important information.
Commissions - Answers A fixed charge for executing a trade
Adding an interaction term between the 2 independent variables to the model, how will the
model be affected. - Answers The R2 will increase (or remain the same) with certainty while the
adjusted R2 can increase or decrease.
Which is not a binary dependent variable? - Answers Change in value of an investment
The odds for your team winning is 0.6 in the next game. What is the probability of your team
losing in the next game? - Answers Odds = 0.6 (p/(1-p))
p = 0.6/1.6 = 0.375
probability of team losing = 1-0.375 = 0.625
While calculating a difference in difference, we run a regression which is as follows:
lm( y ~ d1 +d2 + d3)where d1 and d2 are dummy variables and d3 is their interaction term. We
thus get its coefficients according to the below equation: Y = a + b*d1 + c*d2 + d*d3
What is the difference in difference estimator? - Answers d - difference in difference estimator
is given by coefficient of interaction term
We want to observe a column "y" in dataset. We divide the observations into 2 parts, where y_0
is the set of observations of control group and y_1 is the set of observations of treatment group.
(Let function mean(X) gives the mean value of X) What is the difference estimator given by? -
Answers (A) mean(y_1) - mean(y_0)
Difference estimator = Cov(y1,y0)/Cov(y0,y0) = mean(y_1) - mean(y_0)
Which of these asset classes has historically been the safest (least risky)? - Answers Treasury
bonds
A company of market value $10 billion has a stock split of 2 for 1. Each share is valued at $100
before the stock split. What is the value of each share after the stock split? - Answers $50
A speculative fund manager wants to take advantage of mis-pricing in the market, where he
sees a stock trading at $13.00. He decides to buy and places a market order. Unfortunately, by
the time he places the order, he sees the best bid and offer prices of the stock (in $) as follows:
Bid: 13.20*200 Ask: 13.27*1000 - Answers $0.27
The stock price of Tesla on 31st December 2019 was $418.33 and on 25th February 2020 it is
$799.91. Its book value per share is $41.25 which is same for both dates. Calculating the
change in value factor (book value to price ratio) and momentum (percentage change in price).
, What does this imply about the value factor and momentum factor? - Answers Value factor
goes down and momentum factor goes up.
A high increase in price results in high increase in momentum. Also, this increase in price
results in a decrease in book to price ratio, thereby decreasing the value. There is strong
negative relation between the two.
A positive coefficient on SMB - Answers Indicates that the fund is tilted toward small cap stocks
A positive coefficient on HML - Answers indicates that the fund is tilted toward value stocks
A positive coefficient on MOM - Answers Indicates that the fund is tilted toward high
momentum stocks.
A positive coefficient on QMJ - Answers Indicates that the fund is tilted toward profitable stocks
A positive coefficient on BAB - Answers indicates that the fund is tilted toward safe stocks
A positive and significant coefficient for the intercept - Answers Indicates that the fund manager
has outperformed.
The size effect - Answers Smaller firms have higher returns than larger firms on average. Size =
price*shares outstanding.
The value effect - Answers Inexpensive stocks tend to outperform expensive stocks. Look at
Book to Market ratio (B/M). A low B/M ratio implies the stock is expensive. A high B/M ratio
implies the stock is inexpensive.
The momentum effect - Answers The tendency of stocks that have performed well over the past
year to continue to perform well.
The profitability effect - Answers Profitable stocks tend to outperform unprofitable stocks
Risk effect (volatility) - Answers Low beta assets outperform high beta assets
Investor behavioral biases - Answers 1. Overconfidence: The tendency to overestimate one's
ability
2. Loss aversion: The tendency of individuals to seek pride and avoid regret in their decisions.
3. Recency effect: People tend to overemphasize a recent information when making investment
decisions.
4. Anchoring: Individuals tend to take action based on a single fact or figure that should have
little bearing on their decision, while ignoring more important information.
Commissions - Answers A fixed charge for executing a trade
