Free PRMIA 8008 Exam Dumps Questions & Answers

When doing stress tests based on historical scenarios, if no appropriate historical scenarios exist for a security, it is most INAPPROPRIATE to:

• A.  Estimate a shock factor based on other instruments that might be considered as proxies for such a security
• B.  Estimate a shock factor based upon extrapolation
• C.  Leave the position unshocked
• D.  Estimate a shock factor based upon interpolation

For a given mean, which distribution would you prefer for frequency modeling where operational risk events are considered dependent, or in other words are seen as clustering together (as opposed to being independent)?

• A.  Negative binomial
• B.  Binomial
• C.  Poisson
• D.  Gamma

Which of the following is a cause of model risk in risk management?

• A.  Misspecification of the model
• B.  Incorrect parameter estimation
• C.  Programming errors
• D.  All of the above

Which of the following statements are true:
I. A transition matrix is the probability of a security migrating from one rating class to another during its lifetime.
II. Marginal default probabilities refer to probabilities of default in a particular period, given survival at the beginning of that period.
III. Marginal default probabilities will always be greater than the corresponding cumulative default probability.
IV. Loss given default is generally greater when recovery rates are low.

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

A bank extends a loan of $1m to a home buyer to buy a house currently worth $1.5m, with the house serving as the collateral. The volatility of returns (assumed normally distributed) on house prices in that neighborhood is assessed at 10% annually. The expected probability of default of the home buyer is 5%.
What is the probability that the bank will recover less than the principal advanced on this loan; assuming the probability of the home buyer's default is independent of the value of the house?

• A.  More than 5%
• B.  More than 1%
• C.  0
• D.  Less than 1%