Free PRMIA 8008 Exam Dumps Questions & Answers

Under the KMV Moody's approach to credit risk measurement, which of the following expressions describes the expected 'default point' value of assets at which the firm may be expected to default?

• A.2* Short term debt + Long term debt
• B.Long term debt + 0.5* Short term debt
• C.Short term debt + Long term debt
• D.Short term debt + 0.5* Long term debt

Which of the following are valid criticisms of value at risk:
I. There are many risks that a VaR framework cannot model
II. VaR does not consider liquidity risk
III. VaR does not account for historical market movements
IV. VaR does not consider the risk of contagion

• A.II and IV
• B.All of the above
• C.I and III
• D.I, II and IV

When fitting a distribution in excess of a threshold as part of the body-tail distribution method described by the equation below, how is the parameter 'p' calculated.

Here, F(x) is the severity distribution. F(Tail) and F(Body) are the parametric distributions selected for the tail and the body, and T is the threshold in excess of which the tail is considered to begin.

• A.If there are K observations up to the tail threshold, then p = k*n
• B.If there are N observations, of which K are up to T, then p = k/N
• C.p is a parameter estimated using either the sum of least squares or maximum likelihood estimation
• D.p is a function of the reporting threshold and determined by the log-likelihood functional

If the annual default hazard rate for a borrower is 10%, what is the probability that there is no default at the end of 5 years?

• A.39.35%
• B.60.65%
• C.59.05%
• D.50.00%

The daily VaR of an investor's commodity position is $10m. The annual VaR, assuming daily returns are independent, is ~$158m (using the square root of time rule). Which of the following statements are correct?
I. If daily returns are not independent and show mean-reversion, the actual annual VaR will be higher than
$158m.
II. If daily returns are not independent and show mean-reversion, the actual annual VaR will be lower than
$158m.
III. If daily returns are not independent and exhibit trending (autocorrelation), the actual annual VaR will be higher than $158m.
III. If daily returns are not independent and exhibit trending (autocorrelation), the actual annual VaR will be lower than $158m.

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