PRMIA 8007 Exam Practice Test Instant Access

Question 1

Which of the following is consistent with the definition of a Type I error?

AThe probability of a Type I error is 100% minus the significance level

BA Type I error would have occurred if the performance of a stock was positively correlated with the performance of a hedge fund, but in a linear regression, the hypothesis of positive correlation was rejected

CA Type I error would have occurred if the performance of a stock was positively correlated with the performance of a hedge fund, but in a linear regression, the hypothesis of no correlation was rejected

DA Type I occurs whenever data series are serially correlated

Answer : B

Question 2

Suppose we perform a principle component analysis of the correlation matrix of the returns of 13 yields along the yield curve. The largest eigenvalue of the correlation matrix is 9.8. What percentage of return volatility is explained by the first component? (You may use the fact that the sum of the diagonal elements of a square matrix is always equal to the sum of its eigenvalues.)

A64%

B75%

C98%

DCannot be determined without estimates of the volatilities of the individual returns

Answer : B

Question 3

Consider the following distribution data for a random variable X: What is the mean and variance of X?

A3.6 and 7.15

B3.4 and 3.84

C3.5 and 3.45

DNone of these

Answer : D

Question 4

What is the probability of tossing a coin and getting exactly 2 heads out of 5 throws?

A8/15

B9/23

C10/32

DNone of these

Answer : C

Question 5

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 6

The natural logarithm of x is:

Athe inverse function of exp(x)

Blog(e)

Calways greater than x, for x>0

D46

Answer : A

Question 7

The determinant of a matrix X is equal 2. Which of the following statements is true?

Adet(2X) =

Bdet(2X) = 2 det(X)

Cdet(2X) = det(X)2

Ddet(2X) = 4 det(X)

Answer : D

PRMIA Mathematical Foundations of Risk Measurement – 2015 Edition 8007 Exam Practice Test