PRM - III Mock Test 2

shubhankar.limaye
Good Student
Posts: 14
Joined: Thu Feb 05, 2015 9:29 am

PRM - III Mock Test 2

Postby shubhankar.limaye » Mon Feb 23, 2015 11:37 am

Arithmetic of answer seems to be incorrect

A bank expects the unexpected loss from loans to customers A & B to be $1.5m and $2.5m respectively. If the correlation between the two is 0.69, the total unexpected loss of the banks portfolio will be
Select one:
a. $4.39m
b. $4m Incorrect
c. $2.5m
d. $1.82m

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The correct answer is $4.39m.

UL portfolio = Sqrt[ULA2 + ULB2 + 2r ULA ULB] = sqrt(2.25+6.25+2*1.5*2.5*0.69)= $4.39m
The correct answer is: $4.39m.

If we calculate as per the formula, the answer is 3.70 approx

shubhankar.limaye
Good Student
Posts: 14
Joined: Thu Feb 05, 2015 9:29 am

PRM - III Mock Test 2

Postby shubhankar.limaye » Mon Feb 23, 2015 11:42 am

Also for following question

Question text
Return on a particular stock on a Monday was 3%. Volatility (Std. deviation) estimate for Monday was 1%. The actual return on Tuesday was 1%. The volatility estimate for Wednesday using Lambda of 0.94 is approx.
Select one:
a. 1.21% Incorrect
b. 0.0156%
c. 1.25%
d. 0.0146%
Feedback
The correct answer is 1.25%.

Volatility estimate for Tuesday = sqrt [(1-0.94)*(3%)2 +(0.94)*(1%)2]= 1.2166%
Volatility estimate for Wednesday = sqrt[(1-0.94)*(1%)2 +(0.94)*(1.2166%)2]= 1.25%
The correct answer is: 1.25%.

When calculated, the answer is 1.2047%


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