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8008 Exam Dumps : PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition

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PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition Questions and Answers

Question 1

An asset has a volatility of 10% per year. An investment manager chooses to hedge it with another asset that has a volatility of 9% per year and a correlation of 0.9. Calculate the hedge ratio.

Options:

A.

1

B.

0.9

C.

0.81

D.

1.2345

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Question 2

The principle underlying the contingent claims approach to measuring credit risk equates the cost of eliminating credit risk for a firm to be equal to:

Options:

A.

the cost of a call on the firm's assets with a strike equal to the value of the debt

B.

the value of a put on the firm's assets with a strike equal to the value of the debt

C.

the probability of the firm's assets falling below the critical value for default

D.

the market valuation of the firm's equity less the value of its liabilities

Question 3

If A and B be two debt securities, which of the following is true?

Options:

A.

The probability of simultaneous default of A and B is greatest when their default correlation is +1

B.

The probability of simultaneous default of A and B is not dependent upon their default correlations, but on their marginal probabilities of default

C.

The probability of simultaneous default of A and B is greatest when their default correlation is negative

D.

The probability of simultaneous default of A and B is greatest when their default correlation is 0