Ultimate Guide to Prepare 8007 Certification Exam for PRM in 2021
Use Real 8007 Dumps - PRMIA Correct Answers updated on 2021
NEW QUESTION 54
A linear regression gives the following output:
Figures in square brackets are estimated standard errors of the coefficient estimates. What is the value of the test statistic for the hypothesis that the coefficient of is zero against the alternative that is less than zero?
- A. 2.5
- B. -1.25
- C. -2.5
- D. 0.125
Answer: C
NEW QUESTION 55
Which of the following is not a direct cause of autocorrelation or heteroskedasticity in the residuals of a regression model?
- A. Using an inappropriate functional form in the model
- B. The omission of a relevant explanatory variable
- C. A high positive correlation between two explanatory variables
- D. A structural break in the dependent variable
Answer: C
NEW QUESTION 56
An underlying asset price is at 100, its annual volatility is 25% and the risk free interest rate is 5%. A European call option has a strike of 85 and a maturity of 40 days. Its Black-Scholes price is 15.52. The options sensitivities are: delta = 0.98; gamma = 0.006 and vega = 1.55. What is the delta-gamma-vega approximation to the new option price when the underlying asset price changes to 105 and the volatility changes to 28%?
- A. 19.23
- B. 20.54
- C. 17.33
- D. 18.75
Answer: B
NEW QUESTION 57
The correlation between two asset returns is 0.5. What is the largest eigenvalue of their correlation matrix?
- A. 0.5
- B. 1.5
- C. 0
- D. None of the above
Answer: B
NEW QUESTION 58
Suppose I trade an option and I wish to hedge that option for delta and vega. Another option is available to trade. To complete the hedge I would
- A. trade the other option in such a way as to make the portfolio delta and vega neutral.
- B. trade the underlying in such a way as to make the portfolio delta and vega neutral.
- C. trade the other option in such a way as to make the portfolio vega neutral, and then trade the underlying in such a way as to make the portfolio delta neutral.
- D. trade the underlying in such a way as to make the portfolio delta neutral, and then trade the other option in such a way as to make the portfolio vega neutral.
Answer: C
NEW QUESTION 59
Let X be a random variable distributed normally with mean 0 and standard deviation 1. What is the expected value of exp(X)?
- A. E(exp(X)) = 1.6487
- B. E(exp(X)) = 0.6065
- C. E(exp(X)) = 1
- D. E(exp(X)) = 2.7183
Answer: A
NEW QUESTION 60
In a binomial tree lattice, at each step the underlying price can move up by a factor of u = 1.1 or down by a factor of . The continuously compounded risk free interest rate over each time step is 1% and there are no dividends paid on the underlying. The risk neutral probability for an up move is:
- A. 0.5290
- B. 0.5286
- C. 0.5292
- D. 0.5288
Answer: D
NEW QUESTION 61
Stress testing portfolios requires changing the asset volatilities and correlations to extreme values. Which of the following would lead to a non positive definite covariance matrix?
- A. Changing all the correlations to be zero
- B. All of the above
- C. Changing the volatilities to be greater than 100%
- D. Changing all the correlations to be unity
Answer: D
NEW QUESTION 62
Let X be a random variable normally distributed with zero mean and let . Then the correlation between X and Y is:
- A. zero
- B. positive
- C. not defined
- D. negative
Answer: A
NEW QUESTION 63
You invest $2m in a bank savings account with a constant interest rate of 5% p.a. What is the value of the investment in 2 years time if interest is compounded quarterly?
- A. $2,208,972
- B. None of them
- C. $2.205,000
- D. $2,210,342
Answer: A
NEW QUESTION 64
The Newton-Raphson method
- A. can be used for continuous but not differentiable functions
- B. does provide an error bound along with every iteration
- C. is based on Taylor series and uses the first derivative
- D. is based on finding a middle point between left and right end of the search interval
Answer: C
NEW QUESTION 65
Which of the following can induce a 'multicollinearity' problem in a regression model?
- A. A large negative correlation between the dependent variable and one of the explanatory variables
- B. The omission of a relevant explanatory variable
- C. A high positive correlation between two explanatory variables
- D. A high positive correlation between the dependent variable and one of the explanatory variables
Answer: C
NEW QUESTION 66
An option has value 10 when the underlying price is 99 and value 9.5 when the underlying price is 101.
Approximate the value of the option delta using a first order central finite difference.
- A. -0.5
- B. 0.25
- C. -0.25
- D. 0
Answer: C
NEW QUESTION 67
Variance reduction is:
- A. A method for reducing the number of simulations required in a Monte Carlo simulation
- B. A technique that is applied in regression models to improve the accuracy of the coefficient estimates
- C. A numerical method for finding portfolio weights to minimize the variance of a portfolio that has a given expected return
- D. A numerical method for finding the variance of the underlying that is implicit in a market price of an option
Answer: A
NEW QUESTION 68
Find the first-order Taylor approximation p(x) for the function: at the point .
- A. x-1
- B. -x
- C. x+1
- D. -x+1
Answer: D
NEW QUESTION 69
Which of the following is consistent with the definition of a Type I error?
- A. A Type I occurs whenever data series are serially correlated
- B. The probability of a Type I error is 100% minus the significance level
- C. A Type I error would have occurred if the performance of a stock was positively correlated with the performance of a hedge fund, but in a linear regression, the hypothesis of positive correlation was rejected
- D. A Type I error would have occurred if the performance of a stock was positively correlated with the performance of a hedge fund, but in a linear regression, the hypothesis of no correlation was rejected
Answer: C
NEW QUESTION 70
Newton-Raphson iteration is used to find a solution of x5 - x3 + x = 1. If xn = 2, what is xn+1?
- A. 1.623
- B. 0.377
- C. 2.362
- D. 1.638
Answer: D
NEW QUESTION 71
What is a Hessian?
- A. A matrix of second derivatives of a function
- B. The point at which a minimum of a multidimensional function is achieved
- C. The vector of partial derivatives of a contingent claim
- D. Correlation matrix of market indices
Answer: A
NEW QUESTION 72
An underlying asset price is at 100, its annual volatility is 25% and the risk free interest rate is 5%. A European put option has a strike of 105 and a maturity of 90 days. Its Black-Scholes price is 7.11. The options sensitivities are: delta = -0.59; gamma = 0.03; vega = 19.29. Find the delta-gamma approximation to the new option price when the underlying asset price changes to 105
- A. 6.49
- B. 5.03
- C. 4.59
- D. 4.54
Answer: D
NEW QUESTION 73
Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?
- A. The lattice will not recombine
- B. The probability of an up move will not be constant
- C. None of the above
- D. There will always be a downward drift in the lattice
Answer: C
NEW QUESTION 74
Which of the following statements concerning class intervals used for grouping of data is correct?
When grouping data, attention must be paid to the following with regards to class intervals:
1. Class intervals should not overlap
2. Class intervals should be of equal size unless there is a specific need to highlight data within a specific subgroup
3. The class intervals should be large enough so that they not obscure interesting variation within the group
- A. Statements 1 and 3 are correct
- B. All three statements are correct
- C. Statements 2 and 3 are correct
- D. Statements 1 and 2 are correct
Answer: D
NEW QUESTION 75
A linear regression gives the following output:
Figures in square brackets are estimated standard errors of the coefficient estimates.
What is the value of the test statistic for the hypothesis that the coefficient of is less than 1?
- A. 0.32
- B. 0.96
- C. 0.64
- D. 1.92
Answer: C
NEW QUESTION 76
You are investigating the relationship between weather and stock market performance. To do this, you pick
100 stock market locations all over the world. For each location, you collect yesterday's mean temperature and humidity and yesterday's local index return. Performing a regression analysis on this data is an example of...
- A. Multiple time-series regression
- B. Simple time-series regression
- C. Simple cross-section regression
- D. Multiple cross-section regression
Answer: D
NEW QUESTION 77
A 2-year bond has a yield of 5% and an annual coupon of 5%. What is the Modified Duration of the bond?
- A. 1.86
- B. 0
- C. 1.75
- D. 1.95
Answer: A
NEW QUESTION 78
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