Free PRMIA 8006 Exam Dumps Questions & Answers

Buying an option on a futures contract requires:

• A.the option premium to be paid upfront and futures margins will become due if the option is exercised
• B.only option premiums to be paid upfront and any daily mark-to-market P&L
• C.only initial margin to be paid at the time of the option exercise
• D.both initial margin and option premium to be paid upfront at the time of entering into the contract

What would be the expected return on a stock with a beta of 1.2, when the risk free rate is 3% and the broad market index is expected to earn 8%?

• A.7%
• B.9%
• C.7.4%
• D.9.6%

Which of the following statements is false:

• A.An FRA can be valued at anytime in its lifetime using the spot interest rate for the period to which the FRA relates
• B.The value of an FRA (forward rate agreement) at inception is zero.
• C.The value of an FRA at expiration is determined by the spot interest rate prevailing at expiration
• D.Notional principals are exchanged at the start and the end of an FRA to eliminate credit risk

In an American option:

• A.only vanilla options are permitted, unlike a European option
• B.early exercise of the option is permitted
• C.early exercise of the option may be permitted provided other conditions are satisfied
• D.early exercise of the option is not permitted

Which of the following statements is true in relation to the capital markets line (CML):
I. The CML is a transformation line that is tangential to the efficient frontier II. The CML allows an investor to obtain the highest return for a given level of risk chosen according to the investor's risk attitude III. The CML is the line passing through the point on the efficient frontier with the highest Sharpe ratio, and a y-intercept equal to the risk free rate IV. The Sharpe ratio for the points on the CML increase in a linear fashion

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