CAIIB 2020 Advanced Bank Management Mock Tests Set 5

The net present value method and the internal rate of return method will always yield the same decision when:

Options are :

• A single project is evaluated
• Mutually exclusive projects are evaluated
• A limited number of projects must be selected from a large number of opportunities
• All of the above are correct (Correct)

Answer :All of the above are correct

The first step in the process of hypothesis testing is:

Options are :

• the collection of the sample.
• to state the hypotheses. (Correct)
• selecting the test statistic.

In the process of hypothesis testing, what is the proper order for these steps?

Options are :

• State the hypotheses. Specify the level of significance. Collect the sample and calculate the test statistics. Make a decision. (Correct)
• Collect the sample and calculate the sample statistics. State the hypotheses. Specify the level of significance. Make a decision.
• Specify the level of significance. State the hypotheses. Make a decision. Collect the sample and calculate the sample statistics.

Answer :State the hypotheses. Specify the level of significance. Collect the sample and calculate the test statistics. Make a decision.

Which of the following statements about hypothesis testing is least accurate?

Options are :

• A Type II error is failing to reject a false null hypothesis.
• If the alternative hypothesis is H : µ > µ , a two tailed test is appropriate. (Correct)
• The null hypothesis is a statement about the value of a population parameter.

Answer :If the alternative hypothesis is H : µ > µ , a two tailed test is appropriate.

A Type I error:

Options are :

• rejects a true null hypothesis. (Correct)
• rejects a false null hypothesis.
• fails to reject a false null hypothesis.

Answer :rejects a true null hypothesis.

When creating intervals around the mean to indicate the dispersion of outcomes, which of the following measures is the most useful? The:

Options are :

• variance.
• standard deviation. (Correct)
• median.

Which of the following statements regarding the terms population and sample is least accurate?

Options are :

• A sample includes all members of a specified group. (Correct)
• A descriptive measure of a sample is called a statistic.
• A sample's characteristics are attributed to the population as a whole.

Answer :A sample includes all members of a specified group.

A simple random sample is a sample drawn in such a way that each member of the population has:

Options are :

• some chance of being selected in the sample.
• an equal chance of being included in the sample. (Correct)
• a 1% chance of being included in the sample.

Answer :an equal chance of being included in the sample.

Sampling error is defined as:

Options are :

• an error that occurs when a sample of less than 30 elements is drawn.
• an error that occurs during collection, recording, and tabulation of data.
• the difference between the value of a sample statistic and the value of the corresponding population parameter. (Correct)

Answer :the difference between the value of a sample statistic and the value of the corresponding population parameter.

Which of the following statements about hypothesis testing is most accurate?

Options are :

• A Type II error is rejecting the null when it is actually true.
• The significance level equals one minus the probability of a Type I error.
• A two-tailed test with a significance level of 5% has z-critical values of ±1.96. (Correct)

Answer :A two-tailed test with a significance level of 5% has z-critical values of ±1.96.

The multiplication rule of probability is used to calculate the:

Options are :

• unconditional probability of an event, given conditional probabilities.
• joint probability of two events. (Correct)
• probability of at least one of two events.

Answer :joint probability of two events.

Which of the following probabilities is an example of an unconditional probability? The probability that the economy will enter a recession:

Options are :

• any time in the next three years. (Correct)
• in the next year if tax rates increase.
• in the next two years if interest rates increase.

Answer :any time in the next three years.

The mean age of all CAIIB candidates is 28 years. The mean age of a random sample of 100 candidates is found to be 26.5 years. The difference of 1.5 years is called the:

Options are :

• random error.
• sampling error. (Correct)
• population error.

Which of the following statements about hypothesis testing is most accurate?

Options are :

• If you can disprove the null hypothesis, then you have proven the alternative hypothesis.
• The power of a test is one minus the probability of a Type I error.
• The probability of a Type I error is equal to the significance level of the test. (Correct)

Answer :The probability of a Type I error is equal to the significance level of the test.

Which of the following option is true regarding “Regression” and “Correlation” ?Note: y is dependent variable and x is independent variable.

Options are :

• The relationship is symmetric between x and y in both.
• The relationship is not symmetric between x and y in both.
• The relationship is not symmetric between x and y in case of correlation but in case of regression it is symmetric.
• The relationship is symmetric between x and y in case of correlation but in case of regression it is not symmetric. (Correct)

Answer :The relationship is symmetric between x and y in case of correlation but in case of regression it is not symmetric.

Rohan believes that the average return on equity in the amusement industry, µ, is greater than 10%. What is the null (Ho ) and alternative (Ha ) hypothesis for his study?

Options are :

• Ho : ? 0.10 versus Ha : > 0.10. (Correct)
• Ho : > 0.10 versus Ha : ? 0.10.
• Ho : > 0.10 versus Ha : < 0.10.

Answer :Ho : ? 0.10 versus Ha : > 0.10.

To test linear relationship of y(dependent) and x(independent) continuous variables, which of the following plot best suited?

Options are :

• Scatter plot (Correct)
• Barchart
• Histograms
• None of these

Sinking fund factor is the reciprocal of :

Options are :

• Present value interest factor of a single cash flow.
• Present value interest factor of an annuity.
• Future value interest factor of a single cash flow.
• Future value interest factor of an annuity. (Correct)

Answer :Future value interest factor of an annuity.

To find the present value of a sum of ? 10,000 to be received at the end of each year for the next 5 years at 10% rate, we use:

Options are :

• The present value of a single cash flow table
• The present value of the annuity table. (Correct)
• Future value of a single cash flow table
• Future value of an annuity table

Answer :The present value of the annuity table.

A company says that whether its earnings increase depends on whether it increased its dividends. From this we know:

Options are :

• P(dividend increase or earnings increase) = P(both dividend and earnings increase).
• P(both dividend increase and earnings increase) = P(dividend increase).
• P(dividend increase - earnings increase) is not equal to P(earnings increase).
• P(earnings increase - dividend increase) is not equal to P(earnings increase). (Correct)

Answer :P(earnings increase - dividend increase) is not equal to P(earnings increase).

The rule of 72 is used to find;

Options are :

• Approximate doubling period, given the interest rate (r)
• The approximate interest rate, given the doubling period (n)
• Both (a) and (b) above. (Correct)

Answer :Both (a) and (b) above.

Which of the following statements about the correlation coefficient is TRUE? The correlation coefficient is:

Options are :

• bounded between 0 and +1.
• boundless.
• bounded between -1 and 0.
• bounded between -1 and +1. (Correct)

Answer :bounded between -1 and +1.

John purchased 60% of the stocks in a portfolio, while Andrew purchased the other 40%. Half of John's stock picks are considered good, while a fourth of Andrew's are considered to be good. If a randomly chosen stock is a good one, what is the probability John selected it?

Options are :

• 0.40.
• 0.30.
• 0.75. (Correct)

Which of the following statements is most correct concerning a project with normal cash flows (i.e., a cash outflow in Year 0 followed by cash inflows in all subsequent years)?

Options are :

• If the NPV of a project is positive then the payback period rule will always accept the project
• If the NPV of a project is negative, then the profitability index of the project will always be greater than one.
• If the PI of a project is greater than one, then the IRR will always be less than the project’s cost of capital
• If the NPV of a project is zero, then the IRR of the project will be equal to the discount rate for the project. (Correct)
• If the discount rate of a project is zero, then the project will always be accepted.

Answer :If the NPV of a project is zero, then the IRR of the project will be equal to the discount rate for the project.

A parking lot has 100 red and blue cars in it. 40% of the cars are red. 70% of the red cars have radios. 80% of the blue cars have radios. What is the probability of selecting a car at random that is either red or has a radio?

Options are :

• 28%.
• 88%.
• 76%. (Correct)

There is a 40% probability that the economy will be good next year and a 60% probability that it will be bad. If the economy is good, there is a 50 percent probability of a bull market, a 30% probability of a normal market, and a 20% probability of a bear market. If the economy is bad, there is a 20% probability of a bull market, a 30% probability of a normal market, and a 50% probability of a bear market. What is the joint probability of a good economy and a bull market?

Options are :

• 20%. (Correct)
• 12%.
• 50%.

The covariance of the returns on investments X and Y is 18.17. The standard deviation of returns on X is 7%, and the standard deviation of returns on Y is 4%. What is the value of the correlation coefficient for returns on investments X and Y?

Options are :

• +0.85.
• +0.65. (Correct)
• +0.32.

If a two tailed hypothesis test has a 5% probability of rejecting the null hypothesis when the null is true, it is most likely that the:

Options are :

• probability of a Type I error is 2.5%.
• significance level of the test is 5%. (Correct)
• power of the test is 95%.

Answer :significance level of the test is 5%.

If we fail to reject the null hypothesis when it is false, what type of error has occured?

Options are :

• Type II. (Correct)
• Type I.
• Type III.

Which of the following statements is correct?

Options are :

• A zero coupon bond is a promise to pay a single lump sum at some point in the future.
• The price of a bond moves in the opposite direction to changes in market interest rates.
• A bond that has a yield to maturity that is greater than its coupon rate will sell at a premium.
• (a), (b), and (c) are all correct.
• (a) and (b) are both correct. (Correct)

Answer :(a) and (b) are both correct.

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