PRMIA 8002 - PRM Certification - Exam II: Mathematical Foundations of Risk Measurement Exam
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Total 132 questions
Question #11 (Topic: )
Exploring a regression model for values of the independent variable that have not been
observed is most accurately described as
observed is most accurately described as
A. Estimation
B. Regression
C. Hypothesis testing
D. Prediction
Answer: D
Question #12 (Topic: )
In a binomial tree lattice, at each step the underlying price can move up by a factor of u =
1.1 or down by a factor of . The continuously compounded risk free interest rate over each
time step is 1% and there are no dividends paid on the underlying. The risk neutral
probability for an up move is:
1.1 or down by a factor of . The continuously compounded risk free interest rate over each
time step is 1% and there are no dividends paid on the underlying. The risk neutral
probability for an up move is:
A. 0.5290
B. 0.5292
C. 0.5286
D. 0.5288
Answer: D
Question #13 (Topic: )
What is the maximum value for f(x)= 8-(x+3)(x-3)?
A. 8
B. -1
C. 17
D. None of these
Answer: C
Question #14 (Topic: )
Every covariance matrix must be positive semi-definite. If it were not then:
A. Some portfolios could have a negative variance
B. One or more of its eigenvalues would be negative
C. There would be no Cholesky decomposition matrix
D. All the above statements are true
Answer: D
Question #15 (Topic: )
Let N(.) denote the cumulative distribution function and suppose that X and Y are standard
normally distributed and uncorrelated. Using the fact that N(1.96)=0.975, the probability
that X 0 and Y 1.96 is approximately
normally distributed and uncorrelated. Using the fact that N(1.96)=0.975, the probability
that X 0 and Y 1.96 is approximately
A. 0.25%
B. 0.488%
C. 0.49%
D. 0.495%
Answer: B
