Exam Code: 8007
Exam Name: Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition
Updated: May 28, 2026
Q & A: 133 Questions and Answers
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1. Which of the following statements is not correct?
A) A function is a rule that assigns to every value x at least one value of y.
B) For finite and small domains, the action of a function may be specified by a list.
C) A function is defined by its domain together with its action.
D) Every linear function is also a quadratic function.
2. You want to test the hypothesis that a population parameter of a regression model is zero. Your alternative hypothesis is that 0. Denote by SD() the estimated standard deviation of , and by MEAN() the estimated mean of . Which test statistic is appropriate, and what is its distribution?
A) test statistic = MEAN()/SD(), t distribution
B) test statistic = MEAN()/SD(), normal distribution
C) test statistic = SD()/MEAN(), t distribution
D) test statistic = SD()/MEAN(), normal distribution
3. The correlation between two asset returns is 0.5. What is the largest eigenvalue of their correlation matrix?
A) None of the above
B) 0.5
C) 1.5
D) 1
4. Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?
A) There will always be a downward drift in the lattice
B) None of the above
C) The probability of an up move will not be constant
D) The lattice will not recombine
5. A 2-year bond has a yield of 5% and an annual coupon of 5%. What is the Modified Duration of the bond?
A) 2
B) 1.86
C) 1.75
D) 1.95
Solutions:
| Question # 1 Answer: A | Question # 2 Answer: A | Question # 3 Answer: C | Question # 4 Answer: B | Question # 5 Answer: B |
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