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Reading 4 Big Data Projects - Answers

Freja Karlsson is a bond analyst who developed a machine learning model to predict bond defaults. She evaluated the model's performance using metrics including precision (91%), recall (93%), F1 score (92%), and accuracy (89%). These metrics are calculated based on the model's confusion matrix, which shows it correctly predicted 307 bond defaults and 113 non-defaults out of 474 total bonds. Karlsson is using these metrics to understand how well the model identifies true positives and avoids false negatives, to improve its ability to predict bond defaults.

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118 views

Reading 4 Big Data Projects - Answers

Freja Karlsson is a bond analyst who developed a machine learning model to predict bond defaults. She evaluated the model's performance using metrics including precision (91%), recall (93%), F1 score (92%), and accuracy (89%). These metrics are calculated based on the model's confusion matrix, which shows it correctly predicted 307 bond defaults and 113 non-defaults out of 474 total bonds. Karlsson is using these metrics to understand how well the model identifies true positives and avoids false negatives, to improve its ability to predict bond defaults.

Uploaded by

tristan.riols
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Question #1 of 11 Question ID: 1472233

Which of the following uses of data is most accurately described as curation?

An investor creates a word cloud from financial analysts’ recent research


A)
reports about a company.
An analyst adjusts daily stock index data from two countries for their different
B)
market holidays.
A data technician accesses an offsite archive to retrieve data that has been
C)
stored there.

Explanation

Curation is ensuring the quality of data, for example by adjusting for bad or missing data.
Word clouds are a visualization technique. Moving data from a storage medium to where
they are needed is referred to as transfer.

(Module 4.1, LOS 4.a)

Freja Karlsson is a bond analyst with Storbank AB. Over the past several months, Karlsson
has been working to develop her own machine learning (ML) model that she plans to use to
predict default of the various bonds that she covers. The inputs to the model are various
pieces of financial data that Karlsson has compiled from multiple sources.

After Karlsson has constructed the model using her knowledge of appropriate variables,
Karlsson runs the model on the training set. Each firm's bonds are classified as predicted- to-
default or predicted-not-to-default. When Karlsson's model predicts that a bond will default
and the bond actually defaults, Karlsson considers this to be a true positive. Karlsson then
evaluates the performance of her model using error analysis. The confusion matrix that
results is shown in Exhibit 1.

N = 474 Actual Bond Status

Bond Default No Default

Model Prediction Bond Default 307 31

No Default 23 113
Question #2 - 5 of 11 Question ID: 1472240

Based on Exhibit 1, Karlsson's model's precision is closest to:

A) 81%.
B) 91%.
C) 71%.

Explanation

Precision, the ratio of correctly predicted positive classes (true positives) to all predicted
positive classes, is calculated as:

Precision (P) = TP /(TP + FP) = 307 / (307 + 31) = 0.9083 (91%)

In the context of this default classification, high precision would help us avoid the situation
where a bond is incorrectly predicted to default when it actually is not going to default.

(Module 4.3, LOS 4.c)

Question #3 - 5 of 11 Question ID: 1472241

Karlsson is especially concerned about the possibility that her model may indicate that a
bond will not default, but then the bond actually defaults. Karlsson decides to use the
model's recall to evaluate this possibility. Based on the data in Exhibit 1, the model's recall is
closest to:

A) 93%.
B) 83%.
C) 73%.

Explanation

Recall that TP / (TP + FN) = 307 / (307 + 23) = 0.9303 = 93%.

Recall is useful when the cost of a false negative is high, such as when we predict that a
bond will not default but it actually will. In cases like this, high recall indicates that false
negatives will be minimized.

(Module 4.3, LOS 4.c)


Question #4 - 5 of 11 Question ID: 1472242

Karlsson would like to gain a sense of her model's overall performance. In her research,
Karlsson learns about the F1 score, which she hopes will provide a useful measure. Based on
Exhibit 1, Karlsson's model's F1 score is closest to:

A) 82%.
B) 92%.
C) 72%.

Explanation

The model's F1 score, which is the harmonic mean of precision and recall, is calculated as:

F1 score = (2 × P × R) / (P + R) = (2 × 0.9083 × 0.9303) / (0.9083 + 0.9303) = 0.9192


(92%)

Like accuracy, F1 is a measure of overall performance measures that gives equal weight to
FP and FN.

(Module 4.3, LOS 4.c)

Question #5 - 5 of 11 Question ID: 1472243

Karlsson also learns of the model measure of accuracy. Based on Exhibit 1, Karlsson's
model's accuracy metric is closest to:

A) 79%.
B) 89%.
C) 69%.

Explanation

The model's accuracy is the percentage of correctly predicted classes out of total
predictions. Model accuracy is calculated as:

Accuracy = (TP + TN) / (TP + FP + TN + FN) = (TP + TN) / N


= (307 + 113) / (307 + 31 + 113 + 23) = (307 + 113) / (474)
= 0.8861 = 89%

(Module 4.3, LOS 4.c)


Question #6 of 11 Question ID: 1472234

Big data is most likely to suffer from low:

A) veracity.
B) velocity.
C) variety.

Explanation

Big data is defined as data with high volume, velocity, and variety. Big data often suffers
from low veracity, because it can contain a high percentage of meaningless data.

(Module 4.1, LOS 4.a)

Question #7 of 11 Question ID: 1472236

In big data projects, data exploration is least likely to encompass:

A) feature design.
B) feature engineering.
C) feature selection.

Explanation

Data exploration encompasses exploratory data analysis, feature selection, and feature
engineering.

(Module 4.2, LOS 4.d)

Question #8 of 11 Question ID: 1472237

Under which of these conditions is a machine learning model said to be underfit?

A) The input data are not labelled.


B) The model treats true parameters as noise.
C) The model identifies spurious relationships.

Explanation
Underfitting describes a machine learning model that is not complex enough to describe
the data it is meant to analyze. An underfit model treats true parameters as noise and fails
to identify the actual patterns and relationships. A model that is overfit (too complex) will
tend to identify spurious relationships in the data. Labelling of input data is related to the
use of supervised or unsupervised machine learning techniques.

(Module 4.3, LOS 4.f)

Question #9 of 11 Question ID: 1472235

The process of splitting a given text into separate words is best characterized as:

A) stemming.
B) tokenization.
C) bag-of-words.

Explanation

Text is considered to be a collection of tokens, where a token is equivalent to a word.


Tokenization is the process of splitting a given text into separate tokens. Bag-of-words
(BOW) is a collection of a distinct set of tokens from all the texts in a sample dataset.
Stemming is the process of converting inflected word forms into a base word.

(Module 4.1, LOS 4.g)

Question #10 of 11 Question ID: 1472232

An executive describes her company's "low latency, multiple terabyte" requirements for
managing Big Data. To which characteristics of Big Data is the executive referring?

A) Volume and variety.


B) Volume and velocity.
C) Velocity and variety.

Explanation

Big Data may be characterized by its volume (the amount of data available), velocity (the
speed at which data are communicated), and variety (degrees of structure in which data
exist). "Terabyte" is a measure of volume. "Latency" refers to velocity.

(Module 4.1, LOS 4.a)


Question #11 of 11 Question ID: 1472238

When evaluating the fit of a machine learning algorithm, it is most accurate to state that:

accuracy is the ratio of correctly predicted positive classes to all predicted


A)
positive classes.
recall is the ratio of correctly predicted positive classes to all actual positive
B)
classes.
precision is the percentage of correctly predicted classes out of total
C)
predictions.

Explanation

Recall (also called sensitivity) is the ratio of correctly predicted positive classes to all actual
positive classes. Precision is the ratio of correctly predicted positive classes to all predicted
positive classes. Accuracy is the percentage of correctly predicted classes out of total
predictions.

(Module 4.3, LOS 4.c)

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