PRMIA 8002 P R M Exam Questions Instant Access

Question 1

An asset price S is lognormally distributed if:

Athe change in price (dS) is normally distributed

B1/S is normally distributed

Cln(dS/S) is normally distributed

Dln(1+dS/S) is normally distributed

Answer : D

Question 2

Bond convexity is closely related to ...

AThe derivative of the bond's present value with respect to yield

BThe second derivative of the bond's present value with respect to yield

CThe integral of the bond's present value with respect to yield

DThe sensitivity of the bond's present value with respect to yield

Answer : B

Question 3

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 4

What is the 40th term in the following series: 4, 14, 30, 52, ...?

A240

B4598

C4840

D4960

Answer : C

Question 5

The correlation between two asset returns is 0.5. What is the largest eigenvalue of their correlation matrix?

A0.5

C1.5

DNone of the above

Answer : C

Question 6

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:

A0.5290

B0.5292

C0.5286

D0.5288

Answer : D

Question 7

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

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