PRMIA 8002 P R M Exam Practice Test Instant Access

Question 1

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

AA structural break in the dependent variable

BA high positive correlation between two explanatory variables

CThe omission of a relevant explanatory variable

DUsing an inappropriate functional form in the model

Answer : B

Question 2

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 3

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 4

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 5

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

A0.25%

B0.488%

C0.49%

D0.495%

Answer : B

Question 6

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?

A12/29

B37/45

C3/4

DNone of these

Answer : B

Question 7

An operational risk analyst models the occurrence of computer failures as a Poisson process with an arrival rate of 2 events per year. According to this model, what is the probability of zero failures in one year?

A0.02

B0.14

C0.25

D0.50

Answer : B

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