Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm


Postby » Tue Aug 12, 2014 8:22 pm

Assuming a specific value for the market parameter, which of the following is an implication of the single-factor
model for assessing the impact of varying default correlations based on a credit position’s beta?
A) If the market parameter and beta have values that do not equal one, then the conditional probability of
default will be greater than the unconditional probability of default .
B) The unconditional standard deviation of 1 > the conditional standard deviation [√(1 - β2)].
C)Individual asset returns and idiosyncratic shocks are not independent from other firm’s shocks and
D) As the market factor goes from weak to strong economies, a smaller idiosyncratic shock will trigger

The answer is B.. I didn't get any explanation for it, so can anyone explain this
Source Schweser

Return to “FRM Part II”



Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.