PRMIA 8002 P R M Exam Practice Test Instant Access

Question 1

A 2-year bond has a yield of 5% and an annual coupon of 5%. What is the Modified Duration of the bond?

B1.95

C1.86

D1.75

Answer : C

Question 2

An underlying asset price is at 100, its annual volatility is 25% and the risk free interest rate is 5%. A European put option has a strike of 105 and a maturity of 90 days. Its Black-Scholes price is 7.11. The options sensitivities are: delta = -0.59; gamma = 0.03; vega = 19.29. Find the delta-gamma approximation to the new option price when the underlying asset price changes to 105

A6.49

B5.03

C4.59

D4.54

Answer : D

Question 3

Find the roots, if they exist in the real numbers, of the quadratic equation

A4 and -2

B-4 and 2

C1 and 0

DNo real roots

Answer : D

Question 4

Consider an investment fund with the following annual return rates over 8 years: +6%, -6%, +12%, -12%, +3%, -3%, +9%, -9% .

What can you say about the annual geometric and arithmetic mean returns of this investment fund?

AThe arithmetic mean return is zero and the geometric mean return is negative

BThe arithmetic mean return is negative and the geometric mean return is zero

CThe arithmetic mean return is equal to the geometric mean return

DNone of the above

Answer : A

Question 5

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.

A5.19

B5.66

C6.31

D4.18

Answer : C

Question 6

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 7

Calculate the determinant of the following matrix:

A4.25

B-4.25

Answer : D

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