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ABM-Case Studies DAILY QUIZ - CAIIB - 11-03-2019 Bank Promotion exams

ABM-Recollected Only for Bankers
ABM-Last Minute A financial analyst investigates the relationship between the riskiness of certain RBI
BFM-Case Studies
securities and their returns. Data on 80 stocks are collected. The analyst chooses risk, in IIBF
percent, as the independent variable (X) and return, in percent, as the dependent
BFM-Recollected IRDA
variable (Y).
BFM-Last Minute SEBI
Important Circulars ΣX = 484.0 ΣY = 740.0 ΣX2 = 6,180.0 ΣY2 = 15,720.0 ΣX*Y = 9,226.32 n = 40 BCSBI
Master Circulars SSXX = 6,180 - 484.02/40 = 323.60 CIBIL
Bank DA Rates
SSYY = 15,720.0 - 740.02/40 = 2,030.0 Banking and Insurance
SSXY = 9,326.32 - 484*740/75 = 372.32
Bank Holidays Ministry of Finance
Life Ins Companies 1. What is the slope of the regression line? Excise & Customs
List of PSBs Income Tax Department
List of Private Banks a. 4.578 NSE
b. 1.833
List of Foreign Banks BSE
c. 1.151
d. -1.151

Ans - c

Solution:

The slope = 372.32 / 323.60 = 1.1506

.............................................

2. What is the intercept of the regression line?

a. -4.578
b. -9.186
c. 4.578
d. 2.891

Ans - c

Solution:

The intercept = 18.5 - 1.1506 * 12.1 = 4.578

.............................................

3. Write the regression line

a. Y = -4.578 + 1.151 * X
b. Y = 1.151 + 4.578 * X
c. Y = 4.578 + 1.151 / X
d. Y = 4.578 + 1.151 * X

Ans - d

Solution:

The regression line is: Y = 4.578 + 1.151 * X

.............................................

4. Interpret the slope

a. The risk premium, the additional return investors need in compensation for additional
risk, is 4.58%
b. The risk premium, the additional return investors need in compensation for additional
risk, is 1.15%
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c. The risk premium, the additional return investors need in compensation for additional
risk, is -1.15%
d. The return premium, the additional risk investors need in compensation for additional
return, is 1.15%

Ans - b

Solution:

The interpretation of the slope is: The risk premium, the additional return investors need
in compensation for additional risk, is 1.15%.
.............................................

5. Interpret the intercept

a. The risk-free rate of return is 4.58%

b. The risk-free rate of return is 1.15%
c. The marginal rate of return is 4.58%
d. The risk-free rate of return is -4.58%

Ans - a

Solution:

The interpretation of the intercept is: The risk-free rate of return is 4.58%
.............................................

Find Correlation coefficient for X and Y values are given below

X= (1,2,3,4,5)
Y= {11,22,34,43,56}

a. 0.8889
b. 0.8989
c. 0.9889
d. 0.9989

Ans - d

Solution:
Step 1: Find Mean for X and Y
X=15/5=3
Y=166/5=33.2

Step 2: Calculate Standard Deviation for Y inputs:

σy= √(1/(N-1)*((x1-xm)^2+(x2-xm)^2+..+(xn-xm)^2))
=√(1/(5-1)((11-33.2)^2+(22-33.2)^2+(34-33.2)^2+(43-33.2)^2+(56-33.2)^2))
=√(1/4((-22.2)^2+(-11.2)^2+(0.8)^2+(9.8)^2+(22.8)^2))
=√(1/4((492.84)+(125.44)+(0.64)+(96.04)+(519.84)))
=√(308.7)
=17.5699

Step 3: Standard Deviation for X Inputs:

σx= √(1/(N-1)*((x1-xm)^2+(x2-xm)^2+..+(xn-xm)^2))
=√(1/(5-1)((1-3)^2+(2-3)^2+(3-3)^2+(4-3)^2+(5-3)^2))
=√(1/4((-2)^2+(-1)^2+(0)^2+(1)^2+(2)^2))
=√(1/4((4)+(1)+(0)+(1)+(4)))
=√(2.5)
=1.5811

Σ((X - μx) (Y - μy))

=(1-3)(11-33.2)+(2-3)(22-33.2)+(3-3)(34-33.2)+(4-3)(43-33.2)+(5-3)(56-33.2)
=(-2*-22.2) + (-1*-11.2) + (0* 0.8) + (1 *9.8) + (2* 22.8)
=44.4 + 11.2 + 0 + 9.8 + 45.6
=111

Correlation Coefficient = 111/((5-1)*1.5811*17.5699)

Correlation Coefficient (r) = 0.9989
.............................................

In a statewide poll, 103 out of 500 Tamilians rated themselves as die-hard Cricket fans.
Find a 90% confidence interval for the true proportion of Tamilians who were die-hard
Cricket fans at that time.

a. 0.1492, 0.2028
b. 0.1592, 0.2228
c. 0.1692, 0.2028
d. 0.1692, 0.2428

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Ans - d

Explanation :

The sample proportion is p = 103/500 = 0.206 and the z–score for a 90% confidence
interval is zr = 1.645
Thus, the true proportion of Tamilians who were die-hard Cricket fans at the time was
p ≈ 0.206 ± (1.645 × 0.5 / √500)
≈ 0.206 ± 0.0368
or 0.1692 ≤ p ≤ 0.2428
So from about 16.92% to 24.28% of Tamilians were die-hard Cricket fans
.............................................

Salim purchased 8%, 3 years bond of Rs. 10 lac, with annual interest payment and face
value payable on maturity. The YTM is assumed@ 6%. Calculate % change in the price
of the bond when the decrease in YTM is 100 basis points from 6% to 5% and the
duration is 2.79 years and modified duration is 2.63 years.

a. 2.36
b. 2.63
c. 3.26
d. 3.62

Ans - b

Explanation :

Percentage change in price of bond

= -MD × Change in Price

= -2.63 × (6% - 5%)
= 2.63%,

That means a fall in YTM by 1% increases the price of the bond by 2.63%.
.............................................

Calculate the relative variability (coefficient of variance) for the samples 60.25, 62.38,
65.32, 61.41, and 63.23 of a population

a. 0.0301
b. 0.0307
c. 0.0103
d. 0.0107

Ans - b

Solution

Mean = (60.25 + 62.38 + 65.32 + 61.41 + 63.23)/5

= 312.59/5
= 62.51

calculate standard deviation

= √( (1/(5 - 1)) * (60.25 - 62.51799)^2 + (62.38 - 62.51799)^2 + (65.32 -
62.51799)^2 + (61.41 - 62.51799)^2 + (63.23 - 62.51799)^2)
= √( (1/4) * (-2.26799^2 + -0.13798999^2 + 2.80201^2 + -1.10799^2 +
0.71201^2))
= √( (1/4) * (5.14377 + 0.01904 + 7.85126 + 1.22764 + 0.50695))
= √ 3.68716
σ = 1.92

calculate coefficient of variance

Coefficient of Variance = (Standard Deviation (σ) / Mean (μ))
= 1.92 / 62.51
= 0.0307
.............................................

We have six students say A, B, C, D, E, F participating in a quiz contest. Out of six

students only two can reach to the final. What is the probability of reaching to the final
of each student ?

a. 1/2
b. 2/3
c. 1/3
d. 1/6

Ans – c

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Solution :

Since out of 6 , 2 can reach the final. Hence sample space is

n(S) = 6 c2 = 6!/(6-b)!×2! = 15
Here event of occurrence of probability of each student out of six ( A B C D E F ) = ( AB
AC AD AE AF ) =n ( E ) = 5
Now P(E) = 5/15 = 1/3
.............................................

A man borrowed a certain sum of money & paid it back in 2 years in two equal
installments. If the roi (compound) was 4% p.a. and if he paid back Rs. 676 annually,
what sum did he borrow?

a. 1725
b. 1525
c. 1275
d. 1575

Ans - c

Explanation :

Here,

PV =?
P = Rs. 676
T = 2 years
R = 4% = 0.04

PV = P / R * [(1+R)^T - 1]/(1+R)^T

PV = 676 × (1.042 – 1) ÷ (0.04 × 1.042)

= 1275
.............................................

Suppose you start a rent -a-car business and want to buy an automobile. You have
choice of buying the car cash down for Rs 400,000 or paying Rs 90,000 a year for five
years for the same car. What is your choice , if opportunity cost is 10% ?

a. Pay cash
b. Take the auto loan
c. Data insufficient to answer
d. None of these

Ans – b

Solution :

Here PV of Rs 90,000 each year for the next 5 years will be..

PV(90000,10%,5) = { 90000×(1.10^5-a. } / 0.10 ×1.1^5

i.e 341171
Now if you see Cash down payment is 400,000 which is greater than the PV of Rs
90,000 for next 5 years ( Rs 341171 ). Hence you prefer taking loan.
.............................................

Ms. X wants to receive a fixed amount for 15 years by investing Rs. 9 lacs @ 9% roi.
How much she will receive annually?

a. 116153
b. 111563
c. 115163
d. 111653

Ans - d

Explanation :

Here,

P = 9 lac
R = 9% p.a.
T = 15 yrs

EMI = P * R * [(1+R)^T/(1+R)^T-1)]

EMI = 900000 * 0.09 * 1.0915 ÷ (1.0915 – 1)

= 111653
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