Free PRMIA 8006 Exam Dumps Questions & Answers

A bond pays semi-annual coupons at an annual rate of 10%, and will mature in a year. What is its modified duration? Assume the yield curve is flat for the next 12 months at 5%.

• A.0.700
• B.1.000
• C.0.953
• D.1.500

Which of the following assumptions underlie the 'square root of time' rule used for computing volatility estimates over different time horizons?
I. asset returns are independent and identically distributed (i.i.d.)
II. volatility is constant over time
III. no serial correlation in the forward projection of volatility
IV. negative serial correlations exist in the time series of returns

• A.I and II
• B.I and III
• C.III and IV
• D.I, II and III

A 15 year bond is trading at par. Its modified duration is 11 years and convexity is 80. Determine the price of the bond following a 10 basis point increase in interest rates

• A.$101.096
• B.$101.104
• C.$98.904
• D.$98.90

[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.] Which of the following best describes a shout option

• A.an option which kicks in as a plain vanilla option if the underlying hits an agreed threshold
• B.an option in which the holder of the option has the right to reset the strike price to be at-the-money once during the life of the option
• C.an option whose expiry is automatically extended if it finishes out of the money.
• D.an option in which the buyer of the option has the option to extend the expiry of the option upon the payment of an extra premium

The objective function satisfying the mean-variance criterion for a gamble with an expected payoff of x, variance var(x) and coefficient of risk tolerance is is:
A)

B)

C)

D)

• A.Option C
• B.Option A
• C.Option B
• D.Option D