Innovations in Investment Technology: Artificial Intelligence Quiz Answers

Get Innovations in Investment Technology: Artificial Intelligence Quiz Answers

Explore the evolution of AI investing and online wealth management.

Investing and managing your wealth online has never been easier, but how does AI investing work and what are the challenges? On this course, you’ll explore how technology has changed the way we invest money. You’ll consider the evolution of AI-driven online wealth management platforms, robo-advisors, and learn how they work and why they’re successful.

Moving from human-based data-driven investing strategies to neural networks, you’ll assess the ability of artificial intelligence to make investment decisions and discover the role of AI and machine learning in making trading decisions.

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Innovations in Investment Technology: Artificial Intelligence Week 01 Quiz Answers

Quiz : Case Discussion Participation

Q1. I certify that I participated in the case discussion and that my own original thinking is shown in my discussion post(s).

  • Yes, I participated in the case discussion for this lesson.
  • No, I did not participate in the case discussion for this lesson.

End of Module Quiz

Q1. You are 25 years old and just starting to invest.  A friend states that you should invest all of your money in equities and ignore other asset classes.  Do you agree with this advice?

  • Yes.  Equities have higher average returns than other asset classes
  • No.  This advice ignores the benefits of diversification between asset classes
  • It depends on your risk tolerance
  • No.  Equities are the riskiest investment

Q2. In assessing your optimal portfolio position, an advisor uses a utility function given by

U = E[R] – 0.5 * A * Var(R)

where A represents your risk aversion.  This means that lower levels of A indicate more risk tolerance.  Who will invest more in equity than bonds as an asset class, an investor with A=1 or an investor with A=10?

  • An investor with A=10
  • They will choose the same allocation
  • An investor with A=1
  • The investor with A=10 will choose 0% equity allocation and the investor with A=1 will choose 100% equity allocation

Q3. Which of the following statements about robo-advisors are true?

  • Traditional advisors provide more personal interaction and guidance than robo-advisors
  • They charge lower fees than traditional advisors
  • They generally invest in passive investment vehicles such as ETFs
  • All of the above

Q4. How are the weights of each stock in the S&P 500 index determined?

  • Weights are randomly assigned to the stocks in the index
  • Each stock is value-weighted, meaning that its weight is its market value, divided by the total market value of all 500 stocks in the index
  • Each stock is equally weighted, meaning that its weight is one divided by the number of stocks in the index (500)
  • The S&P 500 index weights are mean-variance efficient weights

Q5. Why is it difficult to hold an index directly?

  • It is difficult to hold a portfolio of shares of individual stocks in the index in the correct proportions
  • Some stocks are too difficult to buy from the brokers and the market because shares are hard to find
  • You would have to rebalance your portfolio too frequently
  • Some stocks in the index are too expensive

Q6. The creator of an ETF is called the __________

  • Authorized Participant
  • Creation Unit
  • ETF Trust
  • Broker of Record

Q7. Stock A has a price of $5 and Stock B has a price of $10.  If there are 200 shares outstanding of Stock A and 100 shares outstanding of Stock B, what are the value weights of an index of the two stocks?

  • Stock A:  67%, Stock B:  33%
  • Stock A:  33%, Stock B:  67%
  • Stock A:  50%, Stock B:  50%
  • I don’t have enough information to answer this question

Q8. Stock A has a price of $5 and Stock B has a price of $10. An index has value weights in Stock A of 60% and in Stock B of 40%.  If an authorized participant has 60 shares of stock A and 20 shares of stock B, at what price will she sell a value-weighted index ETF of these stocks if she wants to sell 200 shares?

  • $1.00
  • $2.50
  • $10.00
  • $5.00

Q9. The expected return on stocks is about 11%.  Which of the following statements about this claim is closest to being accurate?

  • On average, stocks have returned 11% per year.  However, sometimes the expected return is higher, and sometimes the expected return is lower.
  • The average return on stocks is 11%.  Therefore, the expected return on stocks is 11%.
  • The expected return on stocks is lower than 11%
  • The expected return on stocks is higher than 11%.

Q10. Which of the following measures is responsible for the diversification benefits of holding a portfolio rather than a single asset?

  • Correlation
  • Expected return
  • Standard deviation
  • All of the above

Innovations in Investment Technology: Artificial Intelligence Week 02 Quiz Answers

Quiz : Case Discussion Participation

Q1. I certify that I participated in the case discussion and that my own original thinking is shown in my discussion post(s).

  • Yes, I participated in the case discussion for this lesson.
  • No, I did not participate in the case discussion for this lesson.

End of Module Quiz

Q1. In the benchmark model,

R_{p,t} – R_{f,t} = α_{p} + β_{p}(R_{m,t} – R_{f,t} ) + ε_{p,t}Rp,t​−Rf,t​=αp​+βp​(Rm,t​−Rf,t​)+εp,t

which of the following best describes the meaning of α_{p}αp​?

  • The average return not explained by the benchmark
  • The exposure of the portfolio return to the benchmark
  • Deviations in returns on the portfolio from the benchmark
  • All of the above

Q2. Which of the following is NOT a reason that we assess active managers’ performance against a benchmark?

  • We can invest in a benchmark at low cost
  • Investing in a benchmark does not require the skills of an active manager
  • It is easy to buy exposure (beta) to a benchmark
  • Active managers invest in the benchmark

Q3. In the benchmark model,

R_{p,t} – R_{f,t} = α_{p} + β_{p}(R_{m,t} – R_{f,t}) + ε_{p,t}Rp,t​−Rf,t​=αp​+βp​(Rm,t​−Rf,t​)+εp,t

which of the following captures managers’ skill at choosing stocks

  • α_{p}αp
  • R_{m,t}Rm,t
  • β_{p}βp
  • ε_{p,t}εp,t

Q4. Most active managers’ approach to selecting stocks is called:

  • Discounting
  • Technical analysis
  • Market timing
  • Fundamental analysis

Q5. Which of the following statements about screening are true?

  • Screening uses publicly available information about a firm to select stocks expected to perform well relative to other stocks
  • Screening requires extensive security analysis via fundamental information to identify strong performing stocks
  • Screening relies on insider information to determine which stocks are going to perform relatively well
  • None of the above

Q6. Which of the following statements about issues in a screening approach is true?

  • Screening can be a risky investing approach
  • Signals do not always deliver the same strength of performance
  • Correlation among signals can reduce data density for multiple signals
  • All of the above

Q7. Which of the following is NOT a signal discussed in the videos?

  • High accruals
  • High operating profitability
  • Low market capitalization
  • High ratio of book value to market value

Q8. A pure smart beta momentum index will hold

  • Stocks in an underlying index with strong past returns, but not stocks with poor past returns
  • Stocks in an underlying index with poor past returns and not those with strong past returns
  • All stocks in the universe of stocks with strong past returns
  • Stocks in an underlying index that overweights stocks with strong past returns and underweights those with poor past returns

Q9. A smart beta momentum tilt index will hold:

  • Stocks in an underlying index with poor past returns and not those with strong past returns
  • All stocks in the universe of stocks with strong past returns
  • Stocks in an underlying index with strong past returns, but not stocks with poor past returns
  • Stocks in an underlying index that overweights stocks with strong past returns and underweights those with poor past returns

Innovations in Investment Technology: Artificial Intelligence Week 03 Quiz Answers

Quiz : Case Discussion Participation

Q1. I certify that I participated in the case discussion and that my own original thinking is shown in my discussion post(s).

  • Yes, I participated in the case discussion for this lesson.
  • No, I did not participate in the case discussion for this lesson.

End of Module Quiz

Q1. You have a choice between investing with three asset managers with different expected returns.  You will invest $10,000 with one of them for 30 years.  

  1. An investment with an 8% expected return and a 1% per annum management fee
  2. An investment with a 5% expected return and a 0.25% management fee
  3. An investment with a 12% expected return and a 2% management fee

Which investment is the best choice?

  • I don’t have enough information to answer the question
  • An investment with an 8% expected return and a 1% per annum management fee
  • An investment with a 5% expected return and a 0.25% management fee
  • An investment with a 12% expected return and a 2% management fee

Q2. Situation: Suppose you are evaluating a new strategy from a quant trading analyst, who claims to have discovered a new high-frequency equity arbitrage opportunity uncovered using multi-tiered recursive neural networks (RNN). 

Reflecting on what we have learned from ML/AI in investments, what should be your first question?

  • How many hidden layers does the network have?
  • What is the in-sample performance?
  • What data went into the model?

Q3. Situation: Suppose you are evaluating a new strategy from a quant trading analyst, who claims to have discovered a new high-frequency equity arbitrage opportunity uncovered using multi-tiered recursive neural networks (RNN). 

Now, suppose you found that the strategy is actually [investing in all stocks with tickers starting with the letter “N”, “E”, “U”, “R”, “A”, “L”]. Yet, between 1993 and 2020, the average annualized return of this strategy is actually 8.5% higher than the market. What are your key takeaways from this scenario? Please select all that apply.

  • Equity-based investment strategies should be thoroughly back-tested on all asset classes
  • It’s important to use both market- and characteristics-adjusted returns in performance evaluation
  • Data analytics—advanced or not—could uncover spurious instead of meaningful relations
  • If you change the sample period by a little bit, the results might not hold

Q4. Which of the following statements is NOT true about big data & machine learning/AI?

  • Deep learning can either be supervised or unsupervised
  • In deep learning models, all model choices and parameters are directly estimated from the data rather than supplied by the user
  • Machine learning tools can be used to reduce high dimensionalities from unstructured, textual data
  • Unstructured data can also be small

Q5. Which of the following factors is the most critical in determining the accuracy of supervised machine learning models?

  • Whether the model is linear or nonlinear
  • Relative size between training and test datasets
  • Number of free model parameters
  • Quality of the training data
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