PRMIA 8002 P R M Exam Questions Instant Access

Question 1

Consider the linear regression model for the returns of stock A and the returns of stock B. Stock A is 50% more volatile than stock B. Which of the following statements is TRUE?

AThe stocks must be positively correlated ( )

BBeta must be positive ( )

CBeta must be greater in absolute value than the correlation of the stocks ( )

DAlpha must be positive ( )

Answer : C

Question 2

Which of the following statements is not correct?

AEvery linear function is also a quadratic function.

BA function is defined by its domain together with its action.

CFor finite and small domains, the action of a function may be specified by a list.

DA function is a rule that assigns to every value x at least one value of y.

Answer : D

Question 3

Suppose a discrete random variable can take on the values -1, 0 and 1 each with a probability of 1/3. Then the mean and variance of the variable is

Amean is 0, variance is 2/3

Bmean is 0, variance is 1/3

Cmean is 0, variance is 1/2

Dmean is 1/3, variance is 1/3

Answer : A

Question 4

If the annual volatility of returns is 25% what is the variance of the quarterly returns?

A0.1250

B0.0156

C0.0625

DNone of the above

Answer : B

Question 5

Every covariance matrix must be positive semi-definite. If it were not then:

ASome portfolios could have a negative variance

BIt could not be used to simulate correlated asset paths

CThe associated correlation matrix would not be positive semi-definite

DAll the above statements are true

Answer : D

Question 6

Kurtosis(X) is defined as the fourth centred moment of X, divided by the square of the variance of X. Assuming X is a normally distributed variable, what is Kurtosis(X)?

Answer : B

Question 7

An indefinite integral of a polynomial function is

Aalways positive

Balways increasing

Calways less than the function itself

Dnone of the above

Answer : D

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