PRMIA Mathematical Foundations of Risk Measurement :II 8002 P R M Exam Practice Test

In a 2-step binomial tree, at each step the underlying price can move up by a factor of u = 1.1 or down by a factor of d = 1/u. The continuously compounded risk free interest rate over each time step is 1% and there are no dividends paid on the underlying. Use the Cox, Ross, Rubinstein parameterization to find the risk neutral probability and hence find the value of a European put option with strike 102, given that the underlying price is currently 100.

Assume that 40% of all financial organizations investigated by authorities turn out to be fraudulent.

What is the probability of randomly investigating 2 different organizations and finding that neither is fraudulent; and what is the probability of finding exactly one being fraudulent?

Find the first-order Taylor approximation p(x) for the function: at the point .

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

For a quadratic equation, which of the following is FALSE?

Which of the following is not a direct cause of autocorrelation or heteroskedasticity in the residuals of a regression model?

If A and B are two events with P(A) = 1/4, P(B) = 1/3 and P(A intersection B) =1/5, what is P(Bc | Ac) i.e. the probability of the complement of B when the complement of A is given?