ML4T Practice Questions ACTUAL UPDATED QUESTIONS AND CORRECT
ANSWERS
Question 1: Why did it become a good investment to bet Correct Answer:D
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
Question 3: Is Bollinger Bands a leading indicator? Correct Answer:B
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
Question 5: Who was the first bank Michael approached Correct Answer:B
to make him the CDSs?
A) JP Morgan
B) Goldman Sachs
C) Deutsche Bank
D) Bank of America
Question 7: What is the best way an investor who is Correct Answer:C
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
,Question 9: Which of the following can not improve your Correct Answer:D
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
Question 2: In terms of the fundamental law, when aiming Correct Answer:C
for high performance, you can make up for low skill with
___.
A) low breadth
B) low sharpe ratio
C) high breadth
D) high volatility
Question 4: What should you do when the stock hits the Correct Answer:D
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
Question 6: If the Information Coefficient is doubled and Correct Answer:C
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
Question 8: Which statement is true regarding the Correct Answer:A
Fundamental Law of Portfolio Management?
A) IR = IC * sqrt(BR)
B) IC = IR * sqrt(BR)
C) BR = IC * IR
D) IR = IC + sqrt(BR)
Question 10: What does CDS stand for? Correct Answer:B
A) Collateralized Debt Swap
B) Credit Default Swap
C) Collateralized Debt Security
D) Credit Default Security
Question 11: In the movie "The Big Short", what did Credit Correct Answer:A
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
, Question 13: Which of these scenarios does not indicate Correct Answer:C
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
Question 15: Which celebrity chef and "Kitchen Correct Answer:D
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
Question 17: In Reinforcement Learning, the default MDP Correct Answer:D
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]
Question 19: Given that EMH is about 3 forms, weak, Correct Answer:B
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
Question 12: Which of the following is not the keys of Correct Answer:C
Grinold's fundamental law?
A) Skill
B) Performance
C) Luck
D) Breadth
ANSWERS
Question 1: Why did it become a good investment to bet Correct Answer:D
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
Question 3: Is Bollinger Bands a leading indicator? Correct Answer:B
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
Question 5: Who was the first bank Michael approached Correct Answer:B
to make him the CDSs?
A) JP Morgan
B) Goldman Sachs
C) Deutsche Bank
D) Bank of America
Question 7: What is the best way an investor who is Correct Answer:C
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
,Question 9: Which of the following can not improve your Correct Answer:D
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
Question 2: In terms of the fundamental law, when aiming Correct Answer:C
for high performance, you can make up for low skill with
___.
A) low breadth
B) low sharpe ratio
C) high breadth
D) high volatility
Question 4: What should you do when the stock hits the Correct Answer:D
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
Question 6: If the Information Coefficient is doubled and Correct Answer:C
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
Question 8: Which statement is true regarding the Correct Answer:A
Fundamental Law of Portfolio Management?
A) IR = IC * sqrt(BR)
B) IC = IR * sqrt(BR)
C) BR = IC * IR
D) IR = IC + sqrt(BR)
Question 10: What does CDS stand for? Correct Answer:B
A) Collateralized Debt Swap
B) Credit Default Swap
C) Collateralized Debt Security
D) Credit Default Security
Question 11: In the movie "The Big Short", what did Credit Correct Answer:A
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
, Question 13: Which of these scenarios does not indicate Correct Answer:C
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
Question 15: Which celebrity chef and "Kitchen Correct Answer:D
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
Question 17: In Reinforcement Learning, the default MDP Correct Answer:D
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]
Question 19: Given that EMH is about 3 forms, weak, Correct Answer:B
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
Question 12: Which of the following is not the keys of Correct Answer:C
Grinold's fundamental law?
A) Skill
B) Performance
C) Luck
D) Breadth
