PRMIA 8007 : Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition

Pass 8007 Exam Cram

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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PRMIA Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition Sample Questions:

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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