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PRMIA Exam 8007 Topic 4 Question 80 Discussion

Actual exam question for PRMIA's 8007 exam

Question #: 80
Topic #: 4

[All 8007 Questions]

I have $5m to invest in two stocks: 75% of my capital is invested in stock 1 which has price 100 and the rest is invested in stock 2, which has price 125. If the price of stock 1 falls to 90 and the price of stock 2 rises to 150, what is the return on my portfolio?

A-2.50%

B-5%

C2.50%

D5%

Show Suggested Answer

Suggested Answer: D

by Major at Aug 28, 2024, 05:23 PM

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Elke

8 months ago

That makes sense, maybe it is 0.75 after all.

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Leah

8 months ago

But the correlation is 0.5, so it should be closer to 0.5.

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Virgie

8 months ago

Ah, yes, the old 'Why did the linear regression model cross the road?' joke. Classic. But I'm going with option D - 0.375. It just seems more intuitive to me.

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Deja

7 months ago

I agree with you, option D) 0.375 seems like the most logical choice.

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Howard

7 months ago

I believe it's C) 0.3333, that's my best guess.

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Billi

8 months ago

I'm leaning towards B) 1.125, but I'm not entirely sure.

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Denny

8 months ago

I think it's A) 0.75, based on the formula for explained sum of squares.

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Adelina

8 months ago

I agree with Sharen. The formula is just too straightforward to mess up. Although, I did hear a funny joke about linear regression the other day...

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Julie

7 months ago

C) 0.3333

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Cherry

8 months ago

A) 0.75

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Elke

8 months ago

I disagree, I believe it is 1.125.

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Sharen

8 months ago

Wait, isn't the explained sum of squares calculated as the correlation squared times the total sum of squares? That would make it 0.3333.

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Mitsue

8 months ago

Hmm, I think it might be 1.125. The correlation is 0.5, so the explained sum of squares should be half of the total sum of squares.

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Marguerita

8 months ago

B) 1.125

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Melynda

8 months ago

A) 0.75

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Leah

9 months ago

I think the explained sum of squares is 0.75.

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Jesusa

9 months ago

I'm pretty sure the explained sum of squares is 0.75. That's what I learned in my statistics class.

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Launa

8 months ago

Yes, it is 0.75.

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Isabella

8 months ago

I agree, the explained sum of squares is 0.75.

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Billi

8 months ago

I think it's 0.75.

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a