The IIT Madras BS Financial Forensics (Financial Forensics) End Term paper sat on 1 Sept 2024, in the May 2024 term, set QDB1: 41 questions for 40 marks in 180 minutes. Every question is below with its answer. Take it as a timed mock test to be marked, or read it through first.
If a model predicts the positive class for all observations in a binary classification problem with both positive and negative cases present, which of the following statements is true?
Precision is 100%, but Recall is not necessarily 100%.
Both Recall and Precision are 100%.
Recall is 100%, but Precision is not necessarily 100%.
Neither Recall nor Precision are 100%.
None of these
Correct answer
Recall is 100%, but Precision is not necessarily 100%.
What is the KS of the below gains table?
| Rank | Min | Max | Total Volume | Bads Volume | Goods Volume | KS |
|---|---|---|---|---|---|---|
| 1 | 126 | 152 | 1909 | 0 | 1909 | 0.0000 |
| 2 | 152 | 158 | 1909 | 0 | 1909 | 0.0501 |
| 3 | 158 | 162 | 1909 | 0 | 1909 | 0.1002 |
| 4 | 162 | 167 | 1909 | 1 | 1908 | 0.1502 |
| 5 | 167 | 171 | 1909 | 0 | 1909 | 0.1836 |
| 6 | 171 | 175 | 1909 | 0 | 1909 | 0.2337 |
| 7 | 175 | 180 | 1909 | 0 | 1909 | 0.2838 |
| 8 | 180 | 185 | 1909 | 0 | 1909 | 0.3339 |
| 9 | 185 | 191 | 1909 | 1 | 1908 | 0.3839 |
| 10 | 191 | 198 | 1909 | 1 | 1908 | 0.4173 |
| 11 | 198 | 207 | 1909 | 0 | 1909 | 0.4507 |
| 12 | 207 | 217 | 1909 | 1 | 1908 | 0.5008 |
| 13 | 217 | 229 | 1909 | 0 | 1909 | 0.5342 |
| 14 | 229 | 243 | 1909 | 1 | 1908 | 0.5843 |
| 15 | 243 | 257 | 1909 | 2 | 1907 | 0.6176 |
| 16 | 257 | 274 | 1909 | 3 | 1906 | 0.6343 |
| 17 | 274 | 295 | 1909 | 1 | 1908 | 0.6343 |
| 18 | 295 | 327 | 1909 | 8 | 1901 | 0.6677 |
| 19 | 327 | 383 | 1909 | 12 | 1897 | 0.5843 |
| 20 | 383 | 696 | 1909 | 29 | 1880 | 0.4340 |
43.40
41.73
66.77
38.89
Data Insufficient
Correct answer
66.77
What is the Capture Rate of Bads at top 20%?
| Rank | Min | Max | Total Volume | Bads Volume | Goods Volume | KS |
|---|---|---|---|---|---|---|
| 1 | 126 | 152 | 1909 | 0 | 1909 | 0.0000 |
| 2 | 152 | 158 | 1909 | 0 | 1909 | 0.0501 |
| 3 | 158 | 162 | 1909 | 0 | 1909 | 0.1002 |
| 4 | 162 | 167 | 1909 | 1 | 1908 | 0.1502 |
| 5 | 167 | 171 | 1909 | 0 | 1909 | 0.1836 |
| 6 | 171 | 175 | 1909 | 0 | 1909 | 0.2337 |
| 7 | 175 | 180 | 1909 | 0 | 1909 | 0.2838 |
| 8 | 180 | 185 | 1909 | 0 | 1909 | 0.3339 |
| 9 | 185 | 191 | 1909 | 1 | 1908 | 0.3839 |
| 10 | 191 | 198 | 1909 | 1 | 1908 | 0.4173 |
| 11 | 198 | 207 | 1909 | 0 | 1909 | 0.4507 |
| 12 | 207 | 217 | 1909 | 1 | 1908 | 0.5008 |
| 13 | 217 | 229 | 1909 | 0 | 1909 | 0.5342 |
| 14 | 229 | 243 | 1909 | 1 | 1908 | 0.5843 |
| 15 | 243 | 257 | 1909 | 2 | 1907 | 0.6176 |
| 16 | 257 | 274 | 1909 | 3 | 1906 | 0.6343 |
| 17 | 274 | 295 | 1909 | 1 | 1908 | 0.6343 |
| 18 | 295 | 327 | 1909 | 8 | 1901 | 0.6677 |
| 19 | 327 | 383 | 1909 | 12 | 1897 | 0.5843 |
| 20 | 383 | 696 | 1909 | 29 | 1880 | 0.4340 |
100%
68.33%
83.33%
48.33%
Data Insufficient
Correct answer
83.33%
What is the Capture Rate of applications having score greater than 195?
| Rank | Min | Max | Total Volume | Bads Volume | Goods Volume | KS |
|---|---|---|---|---|---|---|
| 1 | 126 | 152 | 1909 | 0 | 1909 | 0.0000 |
| 2 | 152 | 158 | 1909 | 0 | 1909 | 0.0501 |
| 3 | 158 | 162 | 1909 | 0 | 1909 | 0.1002 |
| 4 | 162 | 167 | 1909 | 1 | 1908 | 0.1502 |
| 5 | 167 | 171 | 1909 | 0 | 1909 | 0.1836 |
| 6 | 171 | 175 | 1909 | 0 | 1909 | 0.2337 |
| 7 | 175 | 180 | 1909 | 0 | 1909 | 0.2838 |
| 8 | 180 | 185 | 1909 | 0 | 1909 | 0.3339 |
| 9 | 185 | 191 | 1909 | 1 | 1908 | 0.3839 |
| 10 | 191 | 198 | 1909 | 1 | 1908 | 0.4173 |
| 11 | 198 | 207 | 1909 | 0 | 1909 | 0.4507 |
| 12 | 207 | 217 | 1909 | 1 | 1908 | 0.5008 |
| 13 | 217 | 229 | 1909 | 0 | 1909 | 0.5342 |
| 14 | 229 | 243 | 1909 | 1 | 1908 | 0.5843 |
| 15 | 243 | 257 | 1909 | 2 | 1907 | 0.6176 |
| 16 | 257 | 274 | 1909 | 3 | 1906 | 0.6343 |
| 17 | 274 | 295 | 1909 | 1 | 1908 | 0.6343 |
| 18 | 295 | 327 | 1909 | 8 | 1901 | 0.6677 |
| 19 | 327 | 383 | 1909 | 12 | 1897 | 0.5843 |
| 20 | 383 | 696 | 1909 | 29 | 1880 | 0.4340 |
100%
68.33%
0%
48.33%
Data Insufficient
Correct answer
Data Insufficient
The Bankruptcy Bank, one of the major lending banks, has hired you to build a credit underwriting model to help their automated lending decisions. Their definition of default is 60-89 DPD. There is historical loans data since January 1, 2021 till 31, July 2024. Which of the following is true – as of July 31, 2024?
Jan’21– Jul’24 is used for performance data
Apl’24 – Jul’24 is used for observation data
Jan’21 – Apl’24 is used for observation data
May’24 – Jul’24 is used for performance data
Jan’21 – Jan’24 is used for observation data
Correct answer
Jan’21 – Apl’24 is used for observation data
Rollrate analysis is used to determine which of the following?
Vintages to be used in the data
Feature selection
Target variable definition
None of these
Correct answer
Target variable definition
Which of the following possibly happens after approving credit?
Underwriting
Reject Inferencing
Propensity
Collections
Fraud check
Correct answer
Collections
Stemming is slower than Lemmatization
TRUE
FALSE
Correct answer
FALSE
Which of the following is not a text preprocessing technique?
Stopword removal
Stemming
Encoding
Lowercase conversion
None of these
Correct answer
Encoding
Given the sentence:
"Customer sign-up rates have increased by 25% in the last quarter."
Output:
['customer', 'sign', 'up', 'rates', 'increased', '25', 'last', 'quarter']
Which of the following text preprocessing techniques was NOT applied to the sentence?
Lowercasing
Removing punctuation
Lemmatization
Tokenization
None of these
Correct answer
Lemmatization
What is reject inferencing in the context of machine learning?
A technique to infer missing data points
A method to handle rejected cases in a dataset
A process to reject outliers in the dataset
A way to accept all data points without filtering
Correct answer
A method to handle rejected cases in a dataset
In the context of reject inferencing, what does 'good reject' refer to?
An incorrectly inferred rejected case
A rejected case that should have been accepted based on model prediction
A correctly rejected case
A rejected case used as a reference for model adjustments
Correct answer
A rejected case that should have been accepted based on model prediction
In a credit risk scenario, if a model has high recall but low precision, it implies that:
The model correctly identifies a high percentage of non-risky customers but makes many mistakes in identifying risky customers.
The model correctly identifies a high percentage of risky customers but also incorrectly labels many non-risky customers as risky.
The model correctly identifies a high percentage of non-risky customers and makes few mistakes in identifying risky customers
The model correctly identifies a high percentage of risky customers and makes few mistakes in identifying non-risky customers.
Correct answer
The model correctly identifies a high percentage of risky customers but also incorrectly labels many non-risky customers as risky.
Which scenario is likely to occur if a credit risk model is optimized solely for high recall?
Most non-risky customers will be correctly identified.
Most risky customers will be correctly identified.
Many non-risky customers will be incorrectly labeled as risky.
Many risky customers will be incorrectly labeled as non-risky.
Correct answer
Many non-risky customers will be incorrectly labeled as risky.
In a SHAP summary plot, what does the colour of the points typically represent?
The magnitude of the SHAP values
The type of model used
The value of the feature (e.g., high or low)
The importance of the feature
Correct answer
The value of the feature (e.g., high or low)
What does “local predictability” refer to in the context of SHAP explanations?
The ability of SHAP values to explain the contribution of features to individual predictions
The general accuracy of the model across the entire dataset
The average SHAP value for a feature across multiple predictions
The consistency of SHAP values across different models
Correct answer
The ability of SHAP values to explain the contribution of features to individual predictions
If average total assets increase, but net income, net sales, and average stockholders' equity remain the same, what is the impact on the return on assets ratio?
Remains the same.
Increases.
Decreases.
Cannot be determined without additional information.
Correct answer
Decreases.
Info Systems Inc. has sales of ₹ 2,820, costs of goods sold of ₹ 2,160, inventory of ₹504, and accounts receivable of ₹ 430. How many days, on average, does it take Info Systems Inc. to sell its inventory?
85.17 days
65.23 days
84.00 days
55.66 days
Correct answer
85.17 days
You have been awarded an insurance settlement of ₹ 250,000 that is payable one year from today. What is the minimum amount you should accept today in exchange for this settlement if you can earn 6.7 percent on your investments?
₹ 232,866.67
₹ 234,301.78
₹ 242,408.19
₹ 250,000.00
Correct answer
₹ 234,301.78
An insurance settlement offer includes annual payments of ₹ 36,000, ₹ 42,000, and ₹ 50,000 over the next three years, respectively, with the first payment being made one year from today. What is the minimum amount you should accept today as a lumpsum settlement if your discount rate is 7 percent?
₹ 111,144.18
₹ 105,000.10
₹ 118,924.27
₹ 114,556.88
Correct answer
₹ 111,144.18
Scott has been offered an employment contract for ten years at a starting salary of ₹ 65,000 with guaranteed annual raises of 5 percent. What is the current value of this offer at a discount rate of 7 percent?
₹ 638,724.17
₹ 602,409.91
₹ 558,845.85
₹ 630,500.00
Correct answer
₹ 558,845.85
Which statement concerning the net present value (NPV) of an investment or a financing project is correct?
A financing project should be accepted if, and only if, the NPV is exactly equal to zero.
An investment project should be accepted only if the NPV is equal to the initial cash flow.
Any type of project should be accepted if the NPV is positive and rejected if it is negative.
Any type of project with greater total cash inflows than total cash outflows, should always be accepted.
Correct answer
Any type of project should be accepted if the NPV is positive and rejected if it is negative.
Wilson's Market is considering two mutually exclusive projects that will not be repeated. The required rate of return is 13.9 percent for Project A and 12.5 percent for Project B. Project A has an initial cost of ₹54,500, and should produce cash inflows of ₹16,400, ₹28,900, and ₹31,700 for Years 1 to 3, respectively. Project B has an initial cost of ₹69,400, and should produce cash inflows of ₹0, ₹48,300, and ₹42,100, for Years 1 to 3, respectively. Which project, or projects, if either, should be accepted and why?
Project A; because its NPV is positive while Project B's NPV is negative
Project A; because it has the higher required rate of return
Project B; because it has the largest total cash inflow
Neither project; because neither has an NPV equal to or greater than its initial cost
Correct answer
Project A; because its NPV is positive while Project B's NPV is negative
It’s always good to have the debt equity ratio of 1 to have a lower WACC:
TRUE
FALSE
Correct answer
FALSE
Which of the following statements are true with respect to ACF and PACF plots
I. ACF plots are used to determining the order of Autoregressive models.
II. PACF plots are used to determining the order of Autoregressive models.
III. PACF plots just computes the Pearson’s correlation between the variable and it’s lagged versions.
IV. ACF plots just computes the Pearson’s correlation between the variable and it’s lagged versions.
I and III
II and IV
I and IV
II and III
Correct answer
II and IV
What does the term 'liquidity' refer to in the context of a Balance Sheet?
The amount of cash a company has on hand.
The company's ability to pay off its short-term obligations.
The total value of a company’s assets.
The value of the company's long-term investments.
Correct answer
The company's ability to pay off its short-term obligations.
Correct answer
Which of the following would NOT appear in the P&L statement?
Sales Revenue
Utilities Expense
Long-term Debt
Depreciation Expense
Correct answer
Long-term Debt
ABC Bank has given INR 1,00,000 as an loan to it’s customer at the rate of 8.5% p.a. in January 2023. At the end of the year the customer paid back 1,08,500 to the bank.While preparing the cash flow statement for 2023 under which header will the bank account this cash inflow:
Cash flow from Operations
Cash flow from Finance
Cash flow from Investment
Correct answer
Cash flow from Operations
What is the Roll Back rate for 150+ DPD after 18 MOB? (Express your answer as percentage)
Correct answer: 6.9 (accepted within ±0.05)
What is the Roll Forward rate for 120-149 DPD after 18 MOB? (Express your answer as percentage)
Correct answer: 49.75 (accepted within ±0.05)
XYZ Consulting paid dividends of ₹ 3,300 and total equity of ₹ 39,450. The debt-equity ratio is 1 and the retention ratio (the ratio of a company's retained income to its net income) is 40 percent. What is the return on assets expressed in percentage?
Correct answer: 6.97 (accepted within ±0.03)
Anu’s foods has net income of ₹ 39,900, net sales of ₹ 3,18,600, total assets of ₹ 6,63,000, common stock of ₹ 1,06,800 with a par value of ₹1 per share, and retained earnings of ₹2,24,400. The stock has a market value of ₹ 5.45 per share. What is the price-earnings ratio expressed in percentage?
Correct answer: 14.59 (accepted within ±0.09)
ABC Inc. has net working capital of ₹ 580, net fixed assets of ₹ 2,326, sales of ₹ 6,900, and current liabilities of ₹ 890. How many rupees worth of sales is generated from every ₹ 1 in total assets?
Correct answer: 1.82 (accepted within ±0.02)
A firm has a return on equity of 25 percent. The total asset turnover is 2.4 and the profit margin is 8 percent. The total equity is ₹ 4,100. What is the net income?
Correct answer: 1025
Sully will receive a perpetuity of ₹ 40,000 per year forever, while Jake will receive 4,00,000 annual payment for the next 2 years. If the interest rate is 6.5 percent, how much more are Sully’s payments worth?
Correct answer: 112865 (accepted within ±5)
The risk-free rate of return is 3.6 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.3?
Correct answer: 13.79 (accepted within ±0.05)
Suppose the risk free rate in the market is 5%, the expected market return is 7% and the beta of the stock is 1.4, at what rate the expected return of a stock changes with respect to the market premium?
Correct answer: 1.4
Holmes, Inc., is a 90% equity and 10% debt financed firm. The unlevered beta is 0.60, the market risk premium is 6.67 percent, and the risk-free rate is 3.30 percent. What is the expected rate of return on this stock? Consider the tax rate as 30%. Express your answer as a decimal
Correct answer: 0.075 (accepted within ±0.005)
Based on the above data, answer the given subquestions.
Compute the EBITDA
Correct answer: 150000
Based on the above data, answer the given subquestions.
Compute the Net Profit
Correct answer: 71500
