Cass Undergraduate School

FR1203/IF1202
Part 1 Examination

00 May 2021 00:00 – 00:00

Instructions to students:

Answer all the questions

Please answer each question of the exam on a separate page.

All questions carry equal marks.

This examination paper consists of X printed pages including the title page.

Materials:
Number of answer books to be provided: 1
Only the Casio calculators FX-83 (MS, ES or GT+) or FX-85 (MS, ES or GT+)
are permitted for use in this exam
Dictionaries are not permitted.
This examination paper may not be removed from the examination room.

External Examiner: Professor XXX Internal Examiner: Dr Malvina Marchese

Page 1 of 5
Question 1. ( 25 marks)

a) An engineer conducts a test to find out if a particular type of circuit is prone

to overheating. If the circuit is prone to overheating the test will report it’s
not prone to overheating with probability 0.2 and it will report that it is prone
to overheating with probability 0.8. If the circuit is not prone to overheating
the test will report it’s not prone to overheating with probability 0.6 and it will
report that it is prone to overheating with probability 0.4. 30% of this
particular type of circuits are prone to overheating. Compute the probability
that a circuit is prone to overheating given that the test detects it.
(10 marks)

b) A continuous random variable X has the following density function:

{
2
k x 0< x <1
f X ( x )=
0 otherwise
Find the normalization constant k and compute the mean and the variance and
the CDF of the random variable
(10 marks)
c) Use the percentage point of the t distribution to find t such that
 P ( T >t )=0.01 , where T t 14
 P ( T <t )=0.95 , where T t 24
 P (−t<T <t )=0.98 , where T t 10
(5 marks)

Question 2 EViews question (25 marks)

Import the exam data in Eviews as a time series dataset. The data has monthly
frequency. Answer the following questions:
1) Generate the growth rate of portftolio , name it prtg. Obtain its histogram and
descriptive statistics and comment on wheather the population of interest is Normally
distributed with all the availbel test in eviews. Disucss the differences between these
tests ( 5 marks)
2) Restrict the sample from the first quarter of month of 1997 to the last month of
2005, in this restrcited subsample test the null hypotesis that the variance of market
is equal to 25, report the p-values and draw conclusions. Which is the alternative in
this test in EViews? (5 marks)
3) Test the null hypothesis that the mean of Value is equal to 3500 and report the p-
values and conclude. (5 marks)
4) Create a new group which contains market and portfolio . Produce the common
descriptive statistics and report the table. ( 5 marks)

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Question 3

a) It is known that the population standard deviation of marks on FRXXX final

exam is σ =9 % . . A marker corrects 100 scripts and finds that the average is
73%. Make the necessary assumptions and then propose e point estimator for
the mean score of the paper. Explain what is meant by an unbiased estimator.
Is the estimator that you have proposed unbiased? Prove your claim. Is the
estimator consistent? Prove your claim. Which is the difference between
unbiasedness and consistency? (10 marks)

b) Write down a 95% and a 99% confidence interval for the mean score
(5 marks)
c) The probability that the random variable takes values lower than
X
x is equal to 0.95 for X ∼ F 6,17. Another random variable Y , which
follows a chi-squared distribution with 9 degrees of freedom, has
probability β to take values larger than 16.92.
Find:
i. The probability that either X takes values lower than x or Y takes
values not larger than 16.92, knowing that the two events are
verified together with 97.5 % probability;
ii. The value of x .
Then, choose the correct answer from the list below:
a. P ( ( X < x ) ∪ (Y ≤ 16.92 ) )=0.0250 and x=2.70
b. P ( ( X < x ) ∪ (Y ≤ 16.92 ) ) ≃ 1 and x=2.70
c. P ( ( X < x ) ∪ (Y ≤ 16.92 ) )=0.0250 and x=3.28
d. P ( ( X < x ) ∪ (Y ≤ 16.92 ) )=0.9250 and x=3.28
e. P ( ( X < x ) ∪ (Y ≤ 16.92 ) )=0.9250 and x=2.70
f. P ( ( X < x ) ∪ (Y ≤ 16.92 ) ) ≃ 1 and x=3.28
(10 marks)

Question 4 (25 marks)

a) The life duration of a particularly beautiful type of pink butterfly is

distributed as a Normal distribution with mean of 365 days and standard
deviation of 10 days. Given that my pink butterfly has already lived 330
days, compute the probability that she can live longer than 380 days.
(10 marks)
b) Assume that daily returns are normally distributed. You drawn a
random, i.i.d., sample containing 81 observations and you calculated the
variance, which turned out to be equal to 0.04 . The width of the ( 1−α ) two-
sided confidence interval for the population mean is 0.105507 , i.e.
P ( A < μ< B )=1−α , and B− A=0.105507 .
What is the value of( 1−α )?

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Give your answer as a number between 0 and 1, with 4 decimal figures.
(5 marks)

c) A random variable Y follows a Normal distribution with unknown

mean and variance, X N( μ , σ 2). A random sample from X produced the
sample statistics:
n=20, X =2.897., S=1.151
Can you conclude at 1% significance level that the mean of the
population is smaller than 3? (make sure that you state clearly the null
and alternative hypotheses, the test statistic, its distribution under the
null hypothesis and the rejection region).
(10 marks)

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