CFA Level 2 Finquiz Mock Exam
Questions And Complete Solutions
(Graded A+)
What 3 things need to be constant and finite in order to calculate Correlation
Coefficient? - ANSWER✔✔1) Means
2) Variances
3) Covariance
Correlation Coefficient can be calculated validly if the means and variances of the
two variables, and the correlation between them are finite and constant
Should outliers always be removed from a data set? - ANSWER✔✔No, Outliers
may provide important information about market reactions during a particular time
period
*First determine whether the outliers contain important information, and then use
judgement to determine whether to include or exclude them
What is Spurious Correlation? - ANSWER✔✔Correlation between 2 variables
arising not from a direct relation between them, but from their relation to a 3rd
variable
*Could also mean any correlation that misleadingly points toward associations
between variables
What is the formula for the slope coefficient? - ANSWER✔✔Cov(x,y) / Var(x)
What is a Type 1 Error and Type 2 Error? - ANSWER✔✔Type 1 Error:
Incorrectly rejecting the null hypothesis when it is true
Questions And Complete Solutions
(Graded A+)
What 3 things need to be constant and finite in order to calculate Correlation
Coefficient? - ANSWER✔✔1) Means
2) Variances
3) Covariance
Correlation Coefficient can be calculated validly if the means and variances of the
two variables, and the correlation between them are finite and constant
Should outliers always be removed from a data set? - ANSWER✔✔No, Outliers
may provide important information about market reactions during a particular time
period
*First determine whether the outliers contain important information, and then use
judgement to determine whether to include or exclude them
What is Spurious Correlation? - ANSWER✔✔Correlation between 2 variables
arising not from a direct relation between them, but from their relation to a 3rd
variable
*Could also mean any correlation that misleadingly points toward associations
between variables
What is the formula for the slope coefficient? - ANSWER✔✔Cov(x,y) / Var(x)
What is a Type 1 Error and Type 2 Error? - ANSWER✔✔Type 1 Error:
Incorrectly rejecting the null hypothesis when it is true
