Mock exam questions QB, EBC2025, 29 May 2020

Statistics

1. In Statistics Case W1ii), we have been drawing samples from the personnel files of a firm with N = 923
employees, characterized by an average wage of µ = 35.021 and a standard deviation of σ = 11.041. As part of
the case, you were expected to complete the spreadsheet shown below.

As you may remember, cell B22 should be defined as “=stdev(B11:B20)”.

Now imagine that, instead of only ten samples, you had the time to draw more and more samples of size n = 9;
and of course, you adjust the position and definition of cell B22 accordingly. To which value would that cell
then converge?
a) 11.041
X b) 3.680
c) 0.012
d) None of the previous three options is correct.

2. Along the lines of Case W3, consider using a Sign test to examine H0: M = 4 for variable Q15b. We repeat the
variable’s definition below.

Please rate the quality of the following services (as currently

Q15 provided by power supply generator producers) on a 1 to 7 1 2 3 4 5 6 7
scale, where 1 means “very low” and 7 means “very high”.
b. Product design assistance.
 Now imagine that the observed proportions reported by SPSS (Group1 <=4, Group2 >4) are 0.51 and 0.49
respectively, with a p-value of 0.742. It turns out that 12 out of 151 respondents have chosen the answer “4” for
this question. What will happen to the p-value when we properly correct for these respondents?
X a) It decreases, but the test outcome will probably still be insignificant at the 5% level.
b) It decreases, and the test outcome will now probably be significant at the 5% level.
c) It stays exactly the same.
d) It increases.

3. Along the lines of Case W5, we apply the CAPM to Corporate Express, a firm represented in the AEX (the
leading Dutch stock market index). We have a dataset with monthly excess returns (in per cent) for the entire
period 1992-1 till 2008-4 (i.e. T = 196 months). The basic CAPM looks as follows, where Rt is the stock return,
RFt the return on a risk-free asset, and RMt the return on the market portfolio, all in period t:
(1) ( Rt − RFt ) = α + β ( RMt − RFt ) + ε t t = 1,…,196

To examine the possible consequences of the sudden burst of the IT bubble in March 2000, we consider the
following dummy-interaction model:

(2) ( Rt − RFt ) = α + αBreak

t + β ( RMt − RFt ) + β ( RMt − RFt ) ⋅ Breakt + εt

t = 1,…,196

where the Break-dummy is defined as follows:

Breakt = 0 for t = 1,…,99 (i.e. 1992-1 until 2000-3)
Breakt = 1 for t = 100,…,196 (i.e. 2000-4 until 2008-4)
Part of the SPSS-results for Model (2) is reported below.
a
Coefficients

Unstandardized Coefficients

Model B Std. Error Beta t Sig.

2 (Constant) -.833 1.426 -.584 .560

Break 1.391 1.981 .045 .702 .484

Market .865 .255 .323 3.387 .001

Market_Break .710 .345 .194 2.058 .041

a.

Now consider the following verbally stated null hypothesis:

“Beta has been stable across the two subperiods distinguished by the Break-dummy.”
Which test statistic in the SPSS output for Model (2) allows us to judge the plausibility of this null hypothesis,
against the implied two-sided alternative?
a) A t-statistic of –0.584 .
b) A t-statistic of 0.702 .
c) A t-statistic of 3.387 .
X d) A t-statistic of 2.058 .

4. In Case W7i), we applied factor analysis to eight different motives which students may have for studying in
Maastricht, as addressed in Case W2. The corresponding variables Q9_1 up to Q9_8, “Study program”, “Close
to hometown”, “Education system”, “Reputation”, “Know people”, “City of Maastricht”, “Student life” and
“International environment”, are all measured on a 1-5 Likert scale. Our dataset contains 173 respondents (with
some missing values), and the full correlation matrix looks as follows.
 Q9_1 Q9_2 Q9_3 Q9_5 Q9_6 Q9_7 Q9_8
Q9_4
Study Close to Education Know City of Student Int.
Reputation
program Hometown system people Maastricht life environment
Q9_1
1 -0.225 0.132 0.442 -0.229 -0.083 -0.091 0.476
Study program
Q9_2
-0.225 1 0.001 -0.233 0.176 0.150 -0.052 -0.195
Close to Hometown
Q9_3
0.132 0.001 1 0.233 -0.051 0.072 0.210 0.062
Education system
Q9_4
0.442 -0.233 0.233 1 0.005 0.002 0.084 0.539
Reputation
Q9_5
-0.229 0.176 -0.051 0.005 1 0.301 0.184 -0.137
Know people
Q9_6
-0.083 0.150 0.072 0.002 0.301 1 0.540 -0.067
City of Maastricht
Q9_7
-0.091 -0.052 0.210 0.084 0.184 0.540 1 0.064
Student life
Q9_8
0.476 -0.195 0.062 0.539 -0.137 -0.067 0.064 1
Int. environment

Now imagine that we decide to retain a very limited number of factors: only 2. Given the information above,
which of the following variables can be expected to have the lowest “communality”?
X a) Q9_3: Education system
b) Q9_4: Reputation
c) Q9_6: City of Maastricht
d) Q9_8: International environment
Mathematics

1. Remember Case W1. Shawn Overgrowth, the owner of KickGrass Lawncare enjoys the returns given
in the following payoff table. He can make three distinct business decisions; the returns will then
depend on whether it’s a good or a bad growing season.

Good Bad
2 Tractors € 27,400 € 2,400
3 Mowers € 8,575 € 3,575
No Purchase €0 –€ 1,000

Shawn estimates that the probability of a good growing season is 0.70. Let’s assume there was a weather
forecasting company which could provide perfect information about the upcoming season’s weather.
Then the maximum amount Shawn is willing to pay for those reports is …
X a) less than € 370.
b) between € 370 and € 740.
c) between € 740 and € 1110.
d) more than € 1110.

2. Along the lines of Case W3, suppose that an investor has a Von Neumann-Morgenstern utility function
over gambles on amounts of cash, based on a utility function for cash amounts x defined by u( x) = x
. Now consider a gamble G which has a return of € 25 with probability λ, and a return of € 49 with
probability (1– λ). For which value of λ does the risk premium reach its maximum?
a) λ = 38
X b) λ = 12
c) λ = 13
d) λ = 14

3. Recall Case W5. Consider an investor with utility function for portfolios ܲ of the form
U(P) = µ(P) – 0.5V(P)
who can invest in two uncorrelated risky assets A1 with (µ1,σ1) = (1,2) and A2 with (µ2,σ2) = (4,1), or in
a risk-free bond B with payoff µB = 1. Thus, the investor can construct portfolios of B and the one fund
portfolio M = (1– λ)A1 + λA2. After some calculations the one fund portfolio turns out to consist only
of A2.
Then, for the slope s* of the Pareto optimal line it holds that …
a) s* < 1
b) 1 ≤ s* < 2
c) 2 ≤ s* < 3
X d) s* ≥ 3