This course will provide back test results for all the strategies in developed and emerging markets. The learner will also be taught scientific ways of back testing without succumbing to either look ahead (or) survival bias.

You will learn various methods of building a robust back testing system for the strategies discussed in the previous course. You will be taught how to differentiate between mere data mining and results based on a solid empirical or theoretical foundation. Next, you will learn the ways and means of back-testing the results and subjecting the back test results to stress tests.

After which, you will learn the various ways in which transaction costs and other frictions could be incorporated into the back testing algorithm. Finally, you will learn techniques for measuring a strategy’s performance and the concept of risk-adjusted return. You will use some of the famous measures for risk-adjusted returns such as the Sharpe ratio, Treynor’s Ratio, and Jenson’s Alpha. You will see how to pick an appropriate benchmark for a proposed fund.

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Q1. Give below is the partial balance sheet of SD Corp. All values are in dollars.

Calculate the change in current assets.

• \$ 2893
• \$ 3822
• \$ 3258
• \$ 4328

Q2. Give below is the partial balance sheet of SD Corp. All values are in dollars.

Calculate the change in cash.

• \$ 330
• \$ 644
• \$ 780
• \$ 1020

Q3. Give below is the partial balance sheet of SD Corp. All values are in dollars.

Calculate the change in current liabilities.

• \$ 1400
• \$ 1978
• \$ 2456
• \$ 3256

Q4. Give below is the partial balance sheet of SD Corp. All values are in dollars.

Calculate the change in debt included in current liabilities.

• \$ 565
• \$ 675
• \$ 785
• \$ 450

Q5. Give below is the partial balance sheet of SD Corp. All values are in dollars.

Calculate the change in Income taxes payable.

• \$ 744
• \$ 856
• \$ 546
• \$ 698

Q6. Give below is the partial balance sheet of SD Corp. All values are in dollars.

If the depreciation expense for the year is \$ 1570. Calculate the value of the accruals.

• 625
• 571
• 525
• 479

Q7. Give below is the partial balance sheet of SD Corp. All values are in dollars.

In the income from continued operations is \$2890 then What is the Income ratio?

• 0.057
• 0.047
• 0.037
• 0.067

Q8.

• 0.009
• 0.019
• 0.029
• 0.039

Q9. Give below is the partial balance sheet of SD Corp. All values are in dollars.

What is the Cash component?

• 0.028
• 0.038
• 0.048
• 0.058

Q10. Based on the accrual ratio SD Corp. falls in the low accruals percentile. Should you long this firm or short this firm?

• Short
• Long

Week 2

Quiz 1: Practice Quiz

Q1. Historical Beta = 1.5

Market return (MR) = 6 %

Risk free rate (RFR) = 3 %

What is the expected return according to CAPM?

• 6%
• 6.5%
• 7%
• 7.5%

Q2. If the actual return of the above stock is 8%. Find the value of Alpha.

• 0.5%
• – 0.5%
• 1.5%
• -1.5%

Quiz 2

Q1. The expected return of a stock is 7.4 %. The market return and risk free rate for that period is 5% and 3% respectively. Find the value of Beta.

• 2.2
• 2
• 1.8
• 1.6

Q2. If the actual return of the stock in the previous question is 9%. What is the alpha of this stock?

• 1.4
• 1.6
• 1.8
• 2.0

Q3. If a stock has a relatively high beta, then the stock is …

• undervalued
• overvalued

Q4. If a stock has a relatively low beta, then the stock is …

• undervalued
• overvalued

Q5. In the betting against beta strategy, you long …

• low beta stocks
• high beta stocks

Q6. In the betting against beta strategy, you short …

• high beta stocks
• low beta stocks

Q7. The monthly beta of Peachy & Co along with the median beta of all the stocks in the market is given in the table.

If you want to apply the ‘Betting against Beta’ strategy on 1 st of July, What value of beta will you use for Peachy & Co in your strategy, if you are using an estimation period of 6 month?

• 1.5
• 1.7
• 1.61
• 1.8

Q8. The monthly beta of Peachy & Co along with the median beta of all the stocks in the market is given in the table.

If you are using ‘Betting against Beta’ strategy using the median beta of all the stocks in the market – stock beta is above median beta you will call it high beta stock, otherwise a low beta stock – What will be your strategy be for the month of July?

• Short
• Long

Q9. The monthly beta of Peachy & Co along with the median beta of all the stocks in the market is given in the table.

If you want to apply the ‘Betting against Beta’ strategy on 1 st of Dec, What value of beta will you use if you are using an estimation period of 6 month?

• 1.43
• 1.3
• 1.56
• 1.2

Q10. If you are using ‘Betting against Beta’ strategy using the median beta of all the stocks in the market – stock beta is above median beta you will call it high beta stock, otherwise a low beta stock – What will be your strategy be for the month of Dec?

• Short
• Long

Week 3

Quiz 1

Q1. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Calculate the 12 month look back period momentum for Davy and Co.

• 61.23%
• 56.46%
• 69.34%
• 45.65%

Q2. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Calculate the modified 12 month look back period momentum for Davy and Co.

• 56.46%
• 62.34%
• 36.93%
• 46.23%

Q3. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Calculate the 6 month look back period momentum for Davy and Co at the beginning of Jan.

• 35.31%
• 25.31%
• 15.31%
• 5.31%

Q4. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Calculate the modified 6 month look back period momentum for Davy and Co at the beginning of Jan.

• 1.26%
• 5.26%
• 10.26%
• 15.26%

Q5. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Calculate the 3 month holding period return starting from the month of Jan for Davy and Co.

• 6.9%
• 16.9%
• 11.9%
• 19.9%

Q6. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Based on 12 month look back period time based momentum, What will you do with the stock Davy and Co.

• Long the Stock
• Short the stock

Q7. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Based on 12 month look back period time based momentum, What will you do with the stock Kavy and Co.

• Long the Stock
• Short the stock

Q8. Based on 12 month look back period cross section based momentum, What will you do with the stock Kavy and Co.

• Long the Stock
• Short the stock

Q9. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

Based on 12 month look back period cross section based momentum, What will you do with the stock Davy and Co.

• Short the stock
• Long the Stock

Q10. The monthly returns of two stocks – Kavy and Davy – starting from April 2015 are given in the table.

What strategy will you follow based on both 12 month look back period time based and cross section based momentum?

• Short Davy and Co and Long Kavy and Co
• Long Davy and Co and Short Kavy and Co
• Long Davy and Co and hold Kavy and Co
• Hold Davy and Co and Short Kavy and Co

Week 4

Quiz 1

Q1. The sales values for a firm are given below

Calculate the sales growth variability.

• 0.0164
• 0.156

Q2. The quarterly net income details for two years and the average asset values for a firm are given below:

Calculate the earnings variability.

• 0.0002

First, calculate the earnings ROA for each quarter – divide quarterly NI by the average assets.

Then calculate the variance of these quarterly earning’s ROA to get the answer.

Q3. The sales of firms in a particular industry are given below:

Calculate the industry median value of sales.

• 178
• 165

Q4. The partial financial statement information for Kasai & Co is given below:

Calculate the average total assets.

• 200
• 250
• 300

Q5. The partial financial statement information for Kasai & Co is given below:

Calculate the earnings ROA.

• 0.3
• 0.4

Q6. The partial financial statement information for Kasai & Co is given below:

Calculate the cash flow ROA.

• 0.32
• 0.4

Q7. The partial financial statement information for Kasai & Co is given below:

Calculate the R&D intensity.

• 0.025
• 0.02

Quiz 2

Q1. The following table gives the partial financial statement details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

The median value of earning’s ROA for all the firms in the energy sector is 0.367. What value will you assign to the signal G 1?

• 0
• 1

Q2. The following table gives the partial financial statement details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

The median value of Cash flow ROA for all the firms in the energy sector is 0.270. What value will you assign to the signal G 2?

• 0
• 1

Q3. The following table gives the partial financial statement details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

What value will you assign to the signal G 3?

• 0
• 1

Q4. The following table gives the quarterly Net Income details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

The median value of earnings variability for all the firms in the energy sector is 0.0015. What value will you assign to the signal G 4?

• 0
• 1

Q5. The following table gives the partial financial statement details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

The median value of sales growth variability for all the firms in the energy sector is 0.06. What value will you assign to the signal G 5?

• 0
• 1

Q6. The following table gives the partial financial statement details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

The median value of R & D spending for all the firms in the energy sector is 0. What value will you assign to the signal G 6?

• 0
• 1

Q7. The following table gives the partial financial statement details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

The median value of advertising expense for all the firms in the energy sector is 0.005. What value will you assign to the signal G 7?

• 0
• 1

Q8. The following table gives the partial financial statement details of RK & AD Corp. RK & AD Corp belongs to energy sector. All values are in million rupees.

The median value of CAPEX for all the firms in the energy sector is 0.0067. What value will you assign to the signal G 8?

• 0
• 1

Q9. What is the value of G Score for the RK & AD stock?

• 6
• 7
• 8

Q10. What strategy will you implement for this stock?

• Long the stock
• Short the stock

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