Financial Modeling Exam Bank
Course Introduction
Financial Modeling is a course designed to equip students with the analytical skills required to build, interpret, and analyze financial models used in decision-making within corporate finance, investment banking, and portfolio management. Through hands-on exercises and case studies, students learn to construct models in Excel or similar software that forecast financial performance, value companies, assess project viability, and simulate various business scenarios. Key topics include the development of income statements, balance sheets, and cash flow projections, the application of discounted cash flow (DCF) valuation techniques, scenario and sensitivity analysis, and principles of risk assessment. This course emphasizes the practical application of theoretical financial concepts to real-world business problems, ensuring graduates are prepared to meet industry expectations.
Recommended Textbook
Spreadsheet Modeling and Decision Analysis 7th Edition by Cliff Ragsdale
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Page 2
Chapter 1: Introduction to Modeling and Decision Analysis
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Sample Questions
Q1) In which of the following categories of modeling techniques do the independent variables have unknown or uncertain values or coefficients?
A)Descriptive models
B)Predictive models
C)Prescriptive models
D)Probabilistic models
Answer: A
Q2) In a model Y=fx<sub>1</sub>,x<sub>2</sub>),Y is called:
A)a dependent variable.
B)an independent variable.
C)a confounded variable.
D)a convoluted variable.
Answer: A
Q3) Business analytics focuses on
A)identifying and leveraging business opportunities.
B)formulating analytical models.
C)using models to analyze problem.
D)testing and implementing results.
Answer: A
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Chapter 2: Introduction to Optimization and Linear Programming
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Sample Questions
Q1) Suppose that a constraint 2x<sub>1</sub>+3x<sub>2 </sub> 600 is binding.Then,a constraint 4x<sub>1</sub>+6x<sub>2 </sub> 1,800 is
A)redundant.
B)binding.
C)limiting.
D)infeasible.
Answer: A
Q2) Mathematical programming is referred to as A)optimization.
B)satisficing.
C)approximation.
D)simulation.
Answer: A
Q3) The constraints of an LP model define the A)feasible region
B)practical region
C)maximal region
D)opportunity region
Answer: A
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Chapter 3: Modeling and Solving Lp Problems in a Spreadsheet
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Sample Questions
Q1) In the Analytic Solver Platform dialog box simple upper and lower bounds for decision variables are specified by
A)referring directly to the decision variable cells in the Constraints-Bound area.
B)requiring the addition of the bounds above and below the variable cells.
C)resolving the problem with the bounds added.
D)incorporating the bounds in the objective function.
Answer: A
Q2) The constraints X<sub>1 </sub> 0 and X<sub>2 </sub> 0 are referred to as A)positivity constraints.
B)optimality conditions.
C)left hand sides.
D)nonnegativity conditions.
Answer: D
Q3) Refer to Exhibit 3.3.Which cells should be changing cells in this problem?
A)B4:C4
B)E5
C)D8:D10
D)E8:E10
Answer: A
Page 5
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Chapter 4: Sensitivity Analysis and the Simplex Method
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Sample Questions
Q1) All of the following are true about a variable with a negative reduced cost in a maximization problem except
A)its objective function coefficient must increase by that amount in order to enter the basis.
B)it is at its simple lower bound.
C)it has surplus resources.
D)the objective function value will decrease by that value if the variable is increased by one unit.
Q2) A formulation has 10 variables and 4 constraints not counting non-negativity).How many variables are basic?
A)4
B)10
C)14
D)6
Q3) The sensitivity analysis provides information about which of the following?
A)the impact of a change to an objective function coefficient.
B)the impact of a change in a resource level.
C)the impact of adding simple upper or lower bounds on a decision variable.
D)all of these.
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Page 6
Chapter 5: Network Modeling
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Sample Questions
Q1) The arcs in a network indicate all of the following except?
A)routes
B)paths
C)constraints
D)connections
Q2) What happens to the solution of a network flow model if side constraints are added that do not obey the balance of flow rules?
A)The model solution is not guaranteed to be integer.
B)The model solution will more accurately reflect reality.
C)The model solution will be integer but more accurate.
D)The model solution is not guaranteed to be feasible.
Q3) A maximal flow problem differs from other network models in which way?
A)arcs are two directional
B)multiple supply nodes are used
C)arcs have limited capacity
D)arcs have unlimited capacity
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Chapter 6: Integer Linear Programming
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Sample Questions
Q1) Consider the constraint
X<sub>3 </sub>+ X<sub>4 </sub>+ X<sub>5 </sub>+ X<sub>6 </sub>+ X<sub>7 </sub> 27
Representing Air Express' Monday minimum worker requirement.Why was a " " used versus an "="?
A)The " " is needed to accommodate workers held over from Sunday.
B)Solver only accepts " " constraints.
C)The " " is less restrictive.
D)The "=" will always produce an infeasible constraint.
Q2) Mixed IP formulation requires that:
A)all decision variables must be integer
B)the optimal objective function value must be integer
C)some decision variables must be integer
D)some decision variables and the optimal value of the objective function must be integer
Q3) What are binary integer variables?
A)Variables with any two values,a and b.
B)Variables with values 0 and 1.
C)Variables whose sum of digits is 2
D)Variables with values between 0 and 1.
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Chapter 7: Goal Programming and Multiple Objective Optimization
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Sample Questions
Q1) Multi-objective linear programming MOLP)provide
A)a way to analyze LP problems with multiple conflicting objectives
B)a way to incorporate soft constraints
C)a way to incorporate hard constraints
D)a simple way to solve the problem as a relaxed LP
Q2) What is the soft constraint form of the following hard constraint?
3X<sub>1 </sub>+ 2 X<sub>2 </sub>? 10
A)\(3 \mathrm{X}_{1}+2
\mathrm{X}_{2}+\mathrm{d}_{1}^{-}-\mathrm{d}_{1}^{+}=10\)
B)\(3 \mathrm{X}_{1}+2
\mathrm{X}_{2}+\mathrm{d}_{1}+\mathrm{d}_{1}^{+}=10\)
C)\(3 \mathrm{X}_{1}+2 \mathrm{X}_{2}-\mathrm{d}_{1}^{-}-\mathrm{d}_{1}^{+} \leq 10\)
D)\(3 \mathrm{X}_{1}+2 \mathrm{X}_{2}+\mathrm{d}_{1}^{-}-\mathrm{d}_{1}^{+} \geq 10\)
Q3) Refer to Exhibit 7.4.Given the solution indicated in the spreadsheet,which trucks,if any,are under an equal weight amount,and which trucks are over an equal weight amount?
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Chapter 8: Nonlinear Programming and Evolutionary Optimization
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Sample Questions
Q1) The GRG and Simplex algorithms are similar in that
A)each algorithm process continues until there is no further improvement in the objective function.
B)both algorithms take their starting solution from the spreadsheet.
C)both return the globally optimal solution.
D)both algorithms return a solution that satisfies at least one constraint at equality.
Q2) The GRG algorithm terminates when it
A)has completed 100 iterations.
B)has reached the global optimal solution.
C)when it detects no feasible direction for improvement.
D)when it reaches the steepest gradient.
Q3) What is the straight line Euclidean)distance between the points 5,7)and 1,11)?
A)2.83
B)5.65
C)8
D)16
Q4) Refer to Exhibit 8.2.What values would you enter in the Analytic Solver Platform task pane for the above Excel spreadsheet?
Objective Cell: Variables Cells: Constraints Cells:
Page 10
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Chapter 9: Regression Analysis
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Sample Questions
Q1) R<sup>2</sup><sup> </sup>is also referred to as
A)coefficient of determination.
B)correlation coefficient.
C)total sum of squares.
D)regression sum of squares.
Q2) Refer to Exhibit 9.2.Interpret the meaning of the "Lower 95%" and "Upper 95%" terms in cells F16:G16 of the spreadsheet.
Q3) Refer to Exhibit 9.1.What is the estimated regression function for this problem? Explain what the terms in your equation mean.
\[\widehat { \mathrm { Y } } _ { \mathrm { i } } = 4.8400 + 1.4836 \mathrm { X } _ { \mathrm { li } }\]
Q4) R<sup>2</sup><sup> </sup>is calculated as
A)ESS/TSS
B)1 RSS/TSS)
C)RSS/ESS
D)RSS/TSS
Q5) Refer to Exhibit 9.3.Test the significance of the model and explain which values you used to reach your conclusions.
Q6) Refer to Exhibit 9.6.What is the F-statistic value?
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Chapter 10: Data Mining
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Sample
Questions
Q1) In the k nearest neighbor technique,a small value of k produces classifications that are
A)very sensitive to the sample-specific characteristics of the training data
B)not sensitive to the sample-specific characteristics of the training data
C)robust
D)reliable
Q2) Refer to Exhibit 10.1.What is the straight line distance between 6,4)and 2,9)?
A)3.20
B)6.40
C)9
D)41
Q3) Normalization of data involves
A)expressing each variable on a common,standardized scale
B)subrtracting the grand mean from each observation
C)dividing each observation by total variance
D)dividing each observation by average range
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Chapter 11: Time Series Forecasting
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Sample Questions
Q1) Refer to Exhibit 11.12.What is the Input X Range in the Regression command settings dialog box?
A)$C$3:$C$14
B)$H$3:$H$14
C)$C$3:$G$14
D)$H$3:$I$14
Q2) Refer to Exhibit 11.9.What are predicted sales for the fourth quarter of year 4?
A)1020 ? predicted sales < 1025
B)1090 ? predicted sales < 1095
C)1160 ? predicted sales < 1165
D)1230 ? predicted sales < 1235
Q3) Refer to Exhibit 11.1.What formula should be entered in cell C13 to compute the 4-month moving average forecast for month 11?
A)=AVERAGEB9:B12)/4
B)=AVERAGEB7+B10)
C)=AVERAGEA9:A12)
D)=AVERAGEB9:B12)
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Chapter 12: Introduction to Simulation Using Analytic Solver
Platform
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Sample Questions
Q1) The benefits)of simulation discussed in the text is/are A)gaining better insight into a problem
B)ability to make more informed decisions
C)eliminating the need to build a system with fine-tuning occurring after the launch D)all of the above
Q2) The Analytic Solver Platform is a good simulation tool because A)it is difficult to use
B)it provides several polymorphic spreadsheet interpreter "psi" functions to facilitate Excel calculations
C)it has a limited choice of statistical distributions making it difficult to approximate reality
D)it requires a standalone platform operating independently of Excel
Q3) A simulation model was replicated 100 times yielding a mean of 82.59 with variance of 17.66.Of the 100 replications,11 replications yielded an outcome over a value of 100.What is the 95% confidence interval on the proportion of simulations whose outcomes exceeded a value of 100?
Q4) What function should be used for generating random numbers between 1 and 12 from a continuous uniform distribution?
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Chapter 13: Queuing Theory
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Sample Questions
Q1) Refer to Exhibit 13.3.What is the mean service rate per hour?
Q2) To find steady-state values for the M/M/S queuing system,which of the following statements must be true about the arrival rate?
A) < s
B) s =
C) > s
D) = s
Q3) A grocery clerk can serve 20 customers per hour on average and the service time follows an exponential distribution.What is the expected service time per customer?
Q4) A Poisson distribution shape can be described as
A)slightly skewed to the left.
B)symmetric around the parameter .
C)skewed to the right.
D)discrete so it lacks any definable shape.
Q5) The M/M/s model with finite capacity queue can be used to model
A)a machine breakdown process in a shop with 10 identical machines
B)traffic in a dentist's office
C)a process of patient departure from a dentist's office
D)a process of installing new machines in a shop
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Chapter 14: Decision Analysis
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Sample Questions
Q1) Refer to Exhibit 14.14.Why does the strategy table,examining the risk associated with PG|A)and PG|B)never show "Sell A" or "Trade B for D" as selected options?
Q2) In a graphical representation of decision trees the event nodes are represented by A)squares
B)circles
C)solid dots
D)ovals
Q3) Decision analysis supports all but one of the following goals.Which goal is not supported?
A)Help make good decisions.
B)Help ensure selection of good outcomes.
C)Analyze decision problems logically.
D)Incorporate problem uncertainty.
Q4) Sensitivity analysis is most useful in
A)decision-making under risk
B)decision-making under uncertainty
C)decision-making under certainty
D)all of the above
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Chapter 15: Project Management Online
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Sample Questions
Q1) Which of the following correctly describes the focus of the Program Evaluation and Review Technique PERT)?
A)To order activities in a project in terms of their completion time to facilitate scheduling of the activities.
B)To determine when a project should be completed and to schedule when each activity in the project must begin in order to keep the project on schedule.
C)To estimate the probability of completing a project by a given deadline when the time required to perform the activity is essentially a random variable.
D)To structure the activities of a project in order to eliminate or reduce critical dependencies among the activities.
Q2) If we are employing Activity-On-Node AON)network design,the arcs in the network diagram represent
A)significance relationships.
B)precedence relationships.
C)tasks to complete.
D)task times.
Q3) Refer to Exhibit 15.3.Draw the CPM network for this problem.Use AON notation.
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