IMC Quantitative Methods and Risk

Question 1

An investment of £10,000 earns a compound annual return of 6% over 3 years. What is its approximate value at the end of the period?

Accepted Answer

£11,910

Answer

£11,800

Answer

£12,000

Answer

£11,600

Question 2

What does standard deviation measure in the context of investment returns?

Accepted Answer

The dispersion or volatility of returns around the mean

Answer

The average return of a portfolio

Answer

The maximum possible loss on an investment

Answer

The minimum expected return

Question 3

What does Value at Risk (VaR) at a 95% confidence level over one day represent?

Accepted Answer

The maximum loss that is not expected to be exceeded on 95% of trading days

Answer

The maximum profit expected in one day

Answer

A guarantee that losses will not exceed the VaR figure

Answer

The average daily return of the portfolio

Question 4

If two assets have a correlation coefficient of -0.8, what does this indicate?

Accepted Answer

They tend to move in opposite directions with high consistency

Answer

They tend to move in the same direction with high consistency

Answer

They have no relationship to each other

Answer

One asset always rises when the other falls

Question 5

What is the time value of money principle?

Accepted Answer

A pound today is worth more than a pound in the future because of its potential earning capacity

Answer

Money held in a bank always earns interest

Answer

Inflation always reduces the value of money over time

Answer

Exchange rates determine the value of money

Question 6

What is the net present value (NPV) rule for investment decisions?

Accepted Answer

Accept a project if its NPV is positive, as it adds value; reject if NPV is negative

Answer

Accept all projects with a positive internal rate of return

Answer

Accept projects only if the payback period is less than 3 years

Answer

Accept all projects regardless of their NPV